{"id":795,"date":"2015-05-13T17:22:27","date_gmt":"2015-05-13T17:22:27","guid":{"rendered":"https:\/\/courses.candelalearning.com\/finacct2x10xmaster\/?post_type=chapter&p=795"},"modified":"2015-05-29T14:59:49","modified_gmt":"2015-05-29T14:59:49","slug":"entries-related-to-notes-payable","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/chapter\/entries-related-to-notes-payable\/","title":{"raw":"Entries Related to Notes Payable","rendered":"Entries Related to Notes Payable"},"content":{"raw":"Here is a classic video on short term notes payable that will allow us to review some of the concepts we learned when discussing Notes Receivable.\r\n\r\nhttps:\/\/youtu.be\/hdyO5Csq1Hs\r\n\r\nRemember, with Notes Receivable we learned we need to know 3 things about a note:\r\n
    \r\n\t
  1. Principal (the amount of money we borrowed)<\/li>\r\n\t
  2. Interest Rate (typically an annual interest rate)<\/li>\r\n\t
  3. Maturity term (or frequency of the year -- how many days or months for the note)<\/li>\r\n<\/ol>\r\nIn Notes Receivable, we were the ones providing funds that we would receive at maturity.\u00a0 Now, we are going to borrow money that we must pay back later so we will have Notes Payable.\u00a0 Interest is still calculated as Principal x Interest x Frequency<\/strong> of the year\u00a0 (use 360 days as the base if note term is days or 12 months as the base if note term is in months).\r\n\r\nInterest-bearing notes<\/strong> To receive short-term financing, a company may issue an interest-bearing note to a bank. An interest-bearing note specifies the interest rate charged on the principal borrowed. The company receives from the bank the principal borrowed; when the note matures, the company pays the bank the principal plus the interest.\r\n\r\nAccounting for an interest-bearing note is simple. For example, assume the company\u2019s accounting year ends on December 31. Needham Company issued a\u00a0$10,000, 90-day, 9%\u00a0 note on\u00a0 December 1. The following entries would record the loan, the accrual of interest on\u00a0December 31 and its payment on\u00a0March 1 of the next year:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
    Date<\/strong><\/td>\r\nAccount<\/strong><\/td>\r\nDebit<\/strong><\/td>\r\nCredit<\/strong><\/td>\r\n<\/tr>\r\n
    Dec 1<\/td>\r\nCash<\/td>\r\n10,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    <\/td>\r\n\u00a0\u00a0 Notes Payable<\/td>\r\n<\/td>\r\n10,000<\/td>\r\n<\/tr>\r\n
    <\/td>\r\nTo record 90-day bank loan.<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    Dec 31<\/td>\r\nInterest Expense<\/td>\r\n75<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    <\/td>\r\n\u00a0\u00a0 Interest Payable<\/td>\r\n<\/td>\r\n75<\/td>\r\n<\/tr>\r\n
    <\/td>\r\n$10,000 x 9% x (30 days in Dec \/ 360 days in year)<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    <\/td>\r\nTo record accrued interest on note at year end<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    Mar 1<\/td>\r\nNotes Payable (principal amount)<\/td>\r\n10,000<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    <\/td>\r\nInterest Payable (from Dec 31 entry)<\/td>\r\n75<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    \u00a0<\/strong><\/td>\r\nInterest Expense<\/td>\r\n150<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    <\/td>\r\n$10,000 x 9% x (60 days remaining in note \/ 360 days in year)<\/td>\r\n<\/tr>\r\n
    \u00a0<\/strong><\/td>\r\n\u00a0\u00a0\u00a0\u00a0 Cash (10,000 + 75 + 150)<\/td>\r\n<\/td>\r\n10,225<\/td>\r\n<\/tr>\r\n
    <\/td>\r\nTo record principal and interest paid on bank loan.<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n \r\n\r\nhttp:\/\/www.openassessments.com\/assessments\/1200","rendered":"

    Here is a classic video on short term notes payable that will allow us to review some of the concepts we learned when discussing Notes Receivable.<\/p>\n