chapter eighteen l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
CHAPTER EIGHTEEN PowerPoint Presentation
Download Presentation
CHAPTER EIGHTEEN

Loading in 2 Seconds...

play fullscreen
1 / 89

CHAPTER EIGHTEEN - PowerPoint PPT Presentation


  • 300 Views
  • Uploaded on

CHAPTER EIGHTEEN ACCOUNTING FOR NOTES AND INTEREST PROMISSORY NOTE Def. - a written promise to pay a specific sum at a definite future date. Also called a “note.” Often used when credit is extended for 60 days or more, or when large amounts of money are involved. PROMISSORY NOTE PRINCIPAL

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'CHAPTER EIGHTEEN' - Mia_John


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
chapter eighteen

CHAPTER EIGHTEEN

ACCOUNTING FOR NOTES AND INTEREST

promissory note
PROMISSORY NOTE
  • Def. - a written promise to pay a specific sum at a definite future date.
  • Also called a “note.”
  • Often used when credit is extended for 60 days or more, or when large amounts of money are involved.
promissory note3
PROMISSORY NOTE

PRINCIPAL

$

1,500.00

promissory note4
PROMISSORY NOTE

Date of the

note

$

1,500.00

June 9,

20

- -

promissory note5
PROMISSORY NOTE

Term of

the note

$

1,500.00

June 9,

20

- -

Ninety Days

AFTER DATE

I

PROMISE TO PAY TO

term of the note
TERM OF THE NOTE
  • Def. - months or days
    • from date of issue to date of maturity
  • Used to calculate TIME
    • the term of the note stated as a fraction of a year
      • Note: It is common to use 360 days as a year.

When the term of note is

expressed as months,

TIME is calculated in months.

term of the note7
TERM OF THE NOTE
  • Def. - months or days
    • from date of issue to date of maturity
  • Used to calculate TIME
    • the term of the note stated as a fraction of a year
      • Note: It is common to use 360 days as a year.

When the term of the note is expressed

as days, the TIME is calculated using

the exact number of days.

computing due date
COMPUTING DUE DATE

Example: Note is dated June 9, 20-- and is due in 90 days.

Days in June

30

STEP #1 Start with the

month the note was issued.

computing due date9
COMPUTING DUE DATE

Example: Note is dated June 9, 20-- and is due in 90 days.

Days in June

30

9

Deduct date of note (June 9)

Days remaining in June

21

Subtract the date the note was issued

(we do not count the date of issuance).

computing due date10
COMPUTING DUE DATE

Example: Note is dated June 9, 20-- and is due in 90 days.

Days in June

30

9

Deduct date of note (June 9)

Days remaining in June

21

Add: Days in July

31

31

Days in August

STEP #2 Add to the result of step #1 the no. of

days in as many months as possible without

exceeding the time of the note.

computing due date11
COMPUTING DUE DATE

Example: Note is dated June 9, 20-- and is due in 90 days.

Days in June

30

9

Deduct date of note (June 9)

Days remaining in June

21

Add: Days in July

31

31

Days in August

By the end of August,

83 days of the note have past.

computing due date12
COMPUTING DUE DATE

Example: Note is dated June 9, 20-- and is due in 90 days.

Days in June

30

9

Deduct date of note (June 9)

Days remaining in June

21

Add: Days in July

31

31

Days in August

STEP #3 Subtract the result of step #2

from the time of the note. (90 - 83)

computing due date13
COMPUTING DUE DATE

Example: Note is dated June 9, 20-- and is due in 90 days.

Days in June

30

9

Deduct date of note (June 9)

Days remaining in June

21

Add: Days in July

31

31

Days in August

The result is the date of the month the note is due.

computing due date14
COMPUTING DUE DATE

Example: Note is dated June 9, 20-- and is due in 90 days.

Days in June

30

9

Deduct date of note (June 9)

Days remaining in June

21

Add: Days in July

31

31

Days in August

Maturity date, September 7

7

The 90th day (Sept. 7th) is

called the Maturity Date.

computing due date15
COMPUTING DUE DATE

Example: Note is dated June 9, 20-- and is due in 90 days.

Days in June

30

9

Deduct date of note (June 9)

Days remaining in June

21

Add: Days in July

31

31

Days in August

Maturity date, September 7

7

Total time in days

90

promissory note16
PROMISSORY NOTE

$

1,500.00

June 9,

20

- -

Ninety Days

AFTER DATE

I

PROMISE TO PAY TO

PAYEE

Sarah Morney

THE ORDER OF

promissory note17
PROMISSORY NOTE

$

1,500.00

June 9,

20

- -

Ninety Days

AFTER DATE

I

PROMISE TO PAY TO

Sarah Morney

THE ORDER OF

One Thousand Five Hundred and 00/100

Brentwood Bank

PAYABLE AT

WITH INTEREST AT

9% per Annum from Date

INTEREST

RATE

Notes may be

Interest bearing or

non Interest bearing.

calculating interest
CALCULATING INTEREST

FORMULA:

PRINCIPAL

x

RATE

x

TIME

$1,500.00

9%

90/360

x

x

$33.75

Interest

calculating interest19
CALCULATING INTEREST

Example: A $2,000, 8% note due in 3 months

FORMULA:

x

x

PRINCIPAL

RATE

TIME

x

3/12

$2,000.00

x

8%

$40

Interest

promissory note20
PROMISSORY NOTE

$

1,500.00

June 9,

20

- -

Ninety Days

AFTER DATE

I

PROMISE TO PAY TO

Sarah Morney

THE ORDER OF

One Thousand Five Hundred and 00/100

Brentwood Bank

PAYABLE AT

MATURITY

DATE

WITH INTEREST AT

9% per Annum from Date

6

Sept. 7, 20--

No.

Due

promissory note21
PROMISSORY NOTE

$

1,500.00

June 9,

20

- -

Ninety Days

AFTER DATE

I

PROMISE TO PAY TO

Sarah Morney

THE ORDER OF

One Thousand Five Hundred and 00/100

Brentwood Bank

PAYABLE AT

WITH INTEREST AT

9% per Annum from Date

Maker

of Note

Paul DeBruke

6

Sept. 7, 20--

No.

Due

notes receivable transactions
NOTES RECEIVABLE TRANSACTIONS
  • Six types
    • Note received from a customer to extend time for payment of an account
    • Note collected at maturity
    • Note renewed at maturity
    • Note discounted before maturity
    • Note dishonored
    • Collection of dishonored note
note received to extend time for payment
NOTE RECEIVED TO EXTEND TIME FOR PAYMENT

Example: Accounts Receivable customer, Michael Putter owes $2,000. To settle this account, Putter signs a 90-day, 10% note dated June 8.

Why would we want to

accept this note?

note received to extend time for payment24
NOTE RECEIVED TO EXTEND TIME FOR PAYMENT

Example: Accounts Receivable customer, Michael Putter owes $2,000. To settle this account, Putter signs a 90-day, 10% note dated June 8.

Two reasons to accept this note:

  • Note is a formal, written promise to pay.
    • Can be converted to cash at a bank if necessary
  • Note is likely to bear interest.
general journal
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

June

8

Notes Receivable

2,000

2

Accounts Receivable

2,000

3

Received note to settle

4

account

5

Mr. Putter’s balance is removed

from Accounts Receivable and

placed into Notes Receivable.

6

7

8

9

10

11

note received to extend time for payment26
NOTE RECEIVED TO EXTEND TIME FOR PAYMENT

Example: What if Accounts Receivable customer Michael Putter gives a check for $250 and a note for $1,750 instead?

Let’s look at

the Journal

Entry!

general journal27
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

June

8

Cash

250

2

Notes Receivable

1,750

3

Accounts Receivable

2,000

4

Received cash and note

5

to settle account

6

7

8

9

10

11

note collected at maturity
NOTE COLLECTED AT MATURITY

When a note receivable matures, it may be collected:

  • By the payee
  • By the bank named in the note, or
  • By a bank where it was left for collection.
note collected at maturity29
NOTE COLLECTED AT MATURITY

Example: On September 6 (the due date), Putter pays the principal and interest on the note.

Principal of note

$2,000

Interest

50

$2,000 x 10% x 90/360

note collected at maturity30
NOTE COLLECTED AT MATURITY

Example: On September 6 (the due date), Putter pays the principal and interest on the note.

Principal of note

$2,000

Interest

50

Maturity Value

$2,050

general journal31
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Sept

6

Cash

2,050

2

Notes Receivable

2,000

3

Interest Revenue

50

4

Received payment of note

5

with interest

6

7

8

9

10

11

note collected at maturity32
NOTE COLLECTED AT MATURITY

Example: What if the note had been left at Planet Bank for collection instead?

Planet Bank would collect the maturity value from Putter, subtract out a service charge and deposit the remainder in our account.

general journal33
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Sept

6

Cash

2,040

2

Collection Expense

10

3

Notes Receivable

2,000

4

Interest Revenue

50

5

Received payment of note

6

with interest less collection

7

fee

8

9

10

11

note renewed at maturity
NOTE RENEWED AT MATURITY

Example: At maturity Putter is unable to pay the maturity value. Instead, he pays only the $50 interest and signs a new 60-day, 10% note.

Let’s look at

the Journal

Entry!

general journal35
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Sept

6

Cash

50

2

Notes Receivable (new note)

2,000

3

Notes Receivable (old note)

2,000

4

Interest Revenue

50

5

Received new note plus

6

interest on old note

7

8

9

10

11

note renewed at maturity36
NOTE RENEWED AT MATURITY

Example: What if Putter pays the $50 interest and $500 toward the principal?

Let’s look at

the Journal

Entry!

general journal37
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Sept

6

Cash

550

2

Notes Receivable (new note)

1,500

3

Notes Receivable (old note)

2,000

4

Interest Revenue

50

5

Received new note plus

6

partial payment and interest

7

on old note

8

9

10

11

note discounted before maturity
NOTE DISCOUNTED BEFORE MATURITY
  • If a business needs cash before the due date of a note, it can endorse the note and transfer it to a bank.
    • Bank charges an interest fee “Bank Discount”
      • for the time between the date of discounting and the due date of the note.
    • The difference between the maturity value and the bank discount is called the “Proceeds.”
note renewed at maturity39
NOTE RENEWED AT MATURITY

Example: Assume the $2,000, 10%, 90-day note from Putter dated June 8 is discounted at the bank on July 8 at a rate of 12%.

Calculating

the discount and

proceeds is a four

step process.

note renewed at maturity40
NOTE RENEWED AT MATURITY

Example: Assume the $2,000, 10%, 90-day note from Putter dated June 8 is discounted at the bank on July 8 at a rate of 12%.

Step #1 Compute the maturity value of the note.

Face

Interest

Maturity Value

=

+

$2,000

$50

$2,050

+

=

note renewed at maturity41
NOTE RENEWED AT MATURITY

Example: Assume the $2,000, 10%, 90-day note from Putter dated June 8 is discounted at the bank on July 8 at a rate of 12%.

Step #2 Compute the number of days in the discount period - from the discount date to the due date.

Days in July

31

Less: Discount date

8

The discount date is not

counted in the Discount Period.

note renewed at maturity42
NOTE RENEWED AT MATURITY

Example: Assume the $2,000, 10%, 90-day note from Putter dated June 8 is discounted at the bank on July 8 at a rate of 12%.

Step #2 Compute the number of days in the discount period - from the discount date to the due date.

Days in July

31

Less: Discount date

8

Remaining days in July

23

Plus days in August

31

Plus due date (Sept)

6

Days in Discount Period

60

note renewed at maturity43
NOTE RENEWED AT MATURITY

Example: Assume the $2,000, 10%, 90-day note from Putter dated June 8 is discounted at the bank on July 8 at a rate of 12%.

Step #3 Compute the discount amount.

Maturity Value

Discount Period

Discount Amount

Discount Rate

=

X

X

$41

$2,050

12%

60/360

=

X

X

note renewed at maturity44
NOTE RENEWED AT MATURITY

Example: Assume the $2,000, 10%, 90-day note from Putter dated June 8 is discounted at the bank on July 8 at a rate of 12%.

Step #4 Compute the proceeds.

Maturity Value

Discount Amount

Proceeds

-

=

$2,009

-

$2,050

=

$41

Let’s journalize the

discounting of this note.

general journal45
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

July

8

Cash

2,009

2

Notes Receivable

2,000

3

Interest Revenue

9

4

Discounted note receivable

5

What if the proceeds are less than

the face value of the note?

6

7

8

9

10

11

general journal46
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

July

8

Cash

1,992

2

Interest Expense

8

3

Notes Receivable

2,000

4

Discounted note receivable

5

The difference represents

interest expense.

6

7

8

9

10

11

note dishonored
NOTE DISHONORED
  • Maker of the note does not pay or renew it at maturity
  • Maker is still liable
  • But note loses its legal status
  • Payee transfers the amount due from Notes Receivable to Accounts Receivable
note dishonored48
NOTE DISHONORED

Example: Putter dishonors the $2,000, 10% 90-day note.

Interest, although it has not

been paid by the maker,

is recognized as earned

by the payee.

general journal49
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Sept

6

Accounts Receivable/Putter

2,050

2

Notes Receivable

2,000

3

Interest Revenue

50

4

Note receivable dishonored

5

The entire maturity value

is debited to Accounts Receivable.

6

7

8

9

10

11

note dishonored50
NOTE DISHONORED

Example: If Putter’s note had been discounted at the bank and then was dishonored by the maker, the bank will require the PAYEE to pay the principal, interest and bank fees.

The payee then attempts to

recover the maturity value

PLUS the bank fee

from the maker.

general journal51
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Sept

6

Accounts Receivable/Putter

2,060

2

Cash

2,060

3

Paid bank for dishonored

4

note

5

6

7

8

9

10

11

collection of a dishonored note
COLLECTION OF A DISHONORED NOTE

Example: On October 16, the payee collects from Putter after the note had been discounted and dishonored.

The maker pays the maturity value,

bank fee and additional interest

for the period since dishonoring

the note.

general journal53
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Oct

16

Cash

2,082.89

2

3

+

+

Principal

Interest

Bank Fee

4

+

+

=

$2,000

$50

$10

$2,060

5

6

=

$22.89

x

10%

x

40/360

$2,060

7

$2,082.89

+

=

$2,060

$22.89

8

9

10

11

general journal54
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Oct

16

Cash

2,082.89

2

Accounts Receivable

2,060.00

3

Interest Revenue

22.89

4

Collected dishonored note

5

with interest

6

7

8

9

10

11

slide55

NOTES RECEIVABLE REGISTER

Date Received

Interest

Maker

Time

Due Date

Amount

Rate

Amount

20--

Apr.

4

L. Peters

60-day

June

3

400.00

8%

5.33

21

J. Slaw

60-day

June

21

600.00

9%

9.00

May

2

S. Alpart

30-day

June

1

700.00

9%

5.25

19

L. Shein

90-day

Aug.

17

800.00

9%

18.00

June

20

J. Slaw

60-day

Aug.

19

500.00

9%

7.50

When a business has many notes,

it may keep a Notes Receivable

Register.

slide56

NOTES RECEIVABLE REGISTER

Interest

Discounted

Date Collected

Remarks

Rate

Bank

Date

Amount

8%

5.33

June

3

9%

9.00

June

20

Renewal for $500

9%

5.25

June

1

Sent for collection 5/30

9%

18.00

9%

7.50

Renewal of 4/21 note

accrued interest receivable
ACCRUED INTEREST RECEIVABLE
  • Revenue should be recognized when it is earned.
    • Not always practical
      • Interest is earned day by day
    • Common for interest to be recognized when note is due
      • If note is received and due within a single accounting period
    • If note is received in one period and due in the next, accrued interest must be recorded at the end of the period.
accrued interest receivable58
ACCRUED INTEREST RECEIVABLE

Example: The fiscal year ends on June 30. Two notes from the Notes Receivable Register remain outstanding. Accrued interest on these notes must be calculated and recognized.

Days from Issue Date to June 30

Accrued Interest June 30

Date of Issue

Rate of Interest

Principal

$800.00

May 19

9%

42

$8.40

$800.00 x 9% x 42/360

accrued interest receivable59
ACCRUED INTEREST RECEIVABLE

Example: The fiscal year ends on June 30. Two notes from the Notes Receivable Register remain outstanding. Accrued interest on these notes must be calculated and recognized.

Days from Issue Date to June 30

Accrued Interest June 30

Date of Issue

Rate of Interest

Principal

$800.00

May 19

9%

42

$8.40

$500.00

June 20

9%

10

1.25

$9.65

general journal60
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

June

30

Accrued Interest Receivable

9.65

2

Interest Revenue

9.65

3

Interest accrued on notes

4

receivable

5

6

7

8

9

10

11

notes payable transactions
NOTES PAYABLE TRANSACTIONS
  • Four types
    • Note issued to a supplier to extend time for payment of an account.
    • Note issued as security for cash loan.
    • Note paid at maturity.
    • Note renewed at maturity.
note issued to extend time for payment
NOTE ISSUED TO EXTEND TIME FOR PAYMENT

Example: $700 is owed to Bella & Co. on June 11. Bella & Co. agrees to accept a $700, 90-day, 10% note dated June 11.

The maker would record

this as a Note Payable.

general journal63
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

June

11

Accounts Payable/Bella & Co.

700

2

Notes Payable

700

3

Issued note to settle account

4

5

The balance owed to Bella & Co.

is removed from

Accounts Payable and

placed into Notes Payable.

6

7

8

9

10

11

note issued to extend time for payment64
NOTE ISSUED TO EXTEND TIME FOR PAYMENT

Example: A partial payment of $200 is made to Bella & Co. on June 11. A note is issued to Bella & Co. for the remaining $500.

Let’s look at

the Journal

Entry!

general journal65
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

June

11

Accounts Payable/Bella & Co.

700

2

Cash

200

3

Notes Payable

500

4

Made partial payment and

5

issued note to settle account

6

7

8

9

10

11

note issued as security for cash loan
NOTE ISSUED AS SECURITY FOR CASH LOAN

TWO TYPES:

  • Interest-bearing notes
    • Face value of note is received in cash, maker pays face value plus interest at maturity.
  • Non-interest-bearing notes
    • Interest is deducted in advance, called “discounting”.
    • Face value minus interest is received in cash, maker pays face value at maturity.
interest bearing notes
INTEREST-BEARING NOTES

EXAMPLE: Borrowed $6,000 on June 16 from Planet Bank on a 60-day, 10.5% note.

Let’s look at

the Journal

Entry!

general journal68
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

June

16

Cash

6,000

2

Notes Payable

6,000

3

Issued note for bank loan

4

5

6

7

8

9

10

11

non interest bearing notes
NON-INTEREST-BEARING NOTES

EXAMPLE: A non-interest-bearing 60-day note was issued for $6,000 on June 16. The bank discounts at the rate of 10.5%.

The maker will not receive

the whole $6,000.

10.5% x $6,000 x 60/360 = $105 discount

$6,000 - $105 = $5,895

general journal70
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

June

16

Cash

5,895

2

3

Maker receives the proceeds

but promised to pay the

maturity value ($6,000).

4

5

6

7

8

9

10

11

general journal71
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

June

16

Cash

5,895

2

Discount on Notes Payable

105

3

Notes Payable

6,000

4

Issued note for bank loan

5

6

7

8

9

10

11

maker of the note s balance sheet june 30 20
Maker of the note’sBalance SheetJune 30, 20--

Assets

Current Assets

Liabilities

Current Liabilities

Notes Payable

$6,000

Less: Discount on Notes Payable

105

$5,895

Balance Sheet shows the

Discount on Notes Payable

as a reduction from the

Notes Payable account.

stated vs effective interest rate
STATED vs. EFFECTIVE INTEREST RATE

INTEREST-BEARING NOTE

NON-INTEREST-BEARING NOTE

$105/$6,000 = 1.75%

Interest rate for 60 days

stated vs effective interest rate74
STATED vs. EFFECTIVE INTEREST RATE

INTEREST-BEARING NOTE

NON-INTEREST-BEARING NOTE

$105/$6,000 = 1.75%

x 6

10.5%

Effective rate

stated vs effective interest rate75
STATED vs. EFFECTIVE INTEREST RATE

INTEREST-BEARING NOTE

NON-INTEREST-BEARING NOTE

$105/$6,000 = 1.75%

x 6

10.5%

Interest-bearing notes….

Effective rate = Stated rate

stated vs effective interest rate76
STATED vs. EFFECTIVE INTEREST RATE

INTEREST-BEARING NOTE

NON-INTEREST-BEARING NOTE

$105/$6,000 = 1.75%

$105/$5,895 = 1.781%

x 6

x 6

10.5%

10.686%

Non-Interest-bearing notes….

Effective rate  Stated rate

note paid at maturity
NOTE PAID AT MATURITY

EXAMPLE: The interest-bearing note is paid at maturity.

$6,000 x 10.5% x 60/360 = $105 interest

$6,000 + $105 = $6,105 paid

general journal78
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Aug

15

Notes Payable

6,000

2

Interest Expense

105

3

Cash

6,105

4

Paid note with interest at

5

maturity

6

7

8

9

10

11

note paid at maturity79
NOTE PAID AT MATURITY

Now let’s look at the non-interest-bearing note at maturity.

$6,000 maturity value is paid to Payee.

Discount on Notes Payable

becomes Interest Expense.

general journal80
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Aug

15

Notes Payable

6,000

2

Interest Expense

105

3

Cash

6,000

4

Discount on Notes Payable

105

5

Paid note at maturity

6

7

8

9

10

11

note renewed at maturity81
NOTE RENEWED AT MATURITY

EXAMPLE: The maker pays only $1,000 plus the $105 interest on the $6,000 note and signs a new $5,000, 60-day, 10.5% note.

Old note is removed,

Interest expense of $105 is recognized,

Cash is reduced

and new note is recorded.

general journal82
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

Aug

15

Notes Payable (old note)

6,000

2

Interest Expense

105

3

Cash

1,105

4

Notes Payable

5,000

5

Paid interest and part of old

6

note and issued new note

7

8

9

10

11

slide83

NOTES PAYABLE REGISTER

Date Issued

Interest

Maker

Time

Due Date

Amount

Rate

Amount

20--

Apr.

14

L. Knoop

60-day

June

13

2,000.00

9%

30.00

May

13

Apex Bank

90-day

Aug

11

8,000.00

10%

200.00

June

2

S. Bront

30-day

July

2

1,500.00

11%

13.75

Multiple notes are recorded

on a Notes Payable Register.

slide84

NOTES PAYABLE REGISTER

Interest

Date Paid

Amount

Remarks

Rate

Amount

2,000.00

9%

30.00

June

13

Settled 2/14 invoice

8,000.00

10%

200.00

1,500.00

11%

13.75

Settled 4/2 invoice

accrued interest payable
ACCRUED INTEREST PAYABLE

EXAMPLE: Issued a $900, 60-day 10% note on May 31. June 30 is the company’s fiscal year end.

An adjusting entry is needed

on June 30 to record the interest

accrued on the note from

May 31 to June 30.

general journal86
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

June

30

Interest Expense

7.50

2

Accrued Interest Payable

7.50

3

Interest accrued on note

4

payable

5

6

7

8

9

10

11

accrued interest payable87
ACCRUED INTEREST PAYABLE

EXAMPLE: If instead it was a $900, 60-day non-interest-bearing note that was discounted at the bank at 10%.

An adjusting entry is needed

on June 30 to move the interest

for the period (May 31 to June 30)

from Discount on Notes Payable

to the Interest Expense account.

general journal88
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

May

31

Cash

885

2

Discount on Notes Payable

15

3

Notes Payable

900

4

Issued note for bank loan

5

6

Journal entry to record

note’s issuance

7

8

9

10

11

general journal89
GENERAL JOURNAL

DATE

DESCRIPTION

DEBIT

PR

CREDIT

1

May

31

Cash

885

2

Discount on Notes Payable

15

3

Notes Payable

900

4

Issued note for bank loan

5

6

June

30

Interest Expense

7.50

7

Discount on Notes Payable

7.50

8

Interest accrued on note

9

payable

10

11