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Accounting 3
Chapter 23Section 2
Signing a Note Payable
• Current Liabilities – Liabilities due within a short time, usually within a year.
• Notes Payable are usually paid within one year so they are classified as Current Liabilities.
• When a business signs a note payable, the principal of the note is credited to a liability account titled Notes Payable.
• The principal amount is also debited to cash because the business receives that cash from the lender.
Journal Entry for signing of a Note Payable
Cash Receipts Journal Page ___Date Account Title
Post
Ref.
GENERAL
DEBIT CREDITAccts Rec.
Credit
Sales
Credit
Cash
Debit
Doc
No.
Sales Tax Payable
Debit CreditSales Dis.
Debit
8
Mr 13 Notes Payable R302 5000.00 5000.00
March 13. Signed a 90-day, 10% note, $5000.00. Receipt No. 302.
Paying Principal and Interest on a Note Payable• When a note payable reaches its maturity
date, the maker of the note pays the maturity value (which includes the principal plus interest) to the payee.
• The interest accrued on money borrowed is called interest expense and is debited to an account with the same name.
• Interest expense has a normal debit balance. However, it is a financial expense rather than a normal operations expense. Therefore it is listed in a classification titled Other Expenses in a chart of accounts.
June 11. Paid cash for the maturity value of the March 13 note: principal, $5000.00, plus interest, $125.00; total, $5,125.00. Check No. 627.
Cash Payments Journal Page ___
Date Account TitlePost
Ref.
GENERAL
DEBIT CREDITAccts Pay
Debit
Purch. Disc.
Credit
Cash
Credit
Ck
No.
Jn 11 Notes Payable 627 5 0 0 0 00 5 1 2 5 00
Interest Expense 1 2 5 00
Signing a Note Payable for an Extension of Time.
• A business may ask for an extension of time if it is unable to pay an account when due. The vendor may ask the business to sign a note payable.
• The note payable does not pay the amount owed to the vendor.
• The form of liability is changed from an account payable to a note payable.
Signing a Note Payable for an Extension of Time.
• When the entry is posted, the balance of the Accounts Payable account will be zero and the Notes Payable will contain the amount due to the vendor.
• How to journalize on next slide.
April 5. Winning Edge signed a 60-day, 18% note to Pollard Supply for an extension of time on its account payable, $3000.00. Memorandum No. 47.
General Journal Page ___
Date Account TitlePost
Ref.
Doc.
No.Debit Credit
4
Apr 5 Accts Pay/ Pollard Supply M47 3 0 0 0 00
Notes Payable 3 0 0 0 00
Paying a Note Payable Issued for an Extension of Time.
• The entry to record the cash payment at the maturity date of a note payable is the same regardless of the reason the note was signed.
• So basically journal the same way you do when you pay off any note.
Work Together p. 602.General Journal, this slide; Cash Receipts, next slide; Cash Payments, third slide.
General Journal Page ___
Date Account TitlePost
Ref.
Doc.
No.Debit Credit
Mar 18 Accts Pay/ DryCreek Co. M288 2 0 0 0 00
2 0 0 0 00 Notes Payable
3
Assignment
Cash Receipts Journal Page ___
Date Account TitlePost
Ref.
GENERAL
DEBIT CREDIT
Accts Rec.
Credit
Sales
Credit
Cash
Debit
Doc
No.
Sales Tax Payable
Debit CreditSales Dis.
Debit
5
MR 3 Notes Payable 279 6000.00 6000.00
Back to General Journal
Forward to Cash Payments Journal
Cash Payments Journal Page ___
Date Account TitlePost
Ref.
GENERAL
DEBIT CREDIT
Accts Pay
Debit
Purch. Disc.
Credit
Cash
Credit
Ck
No.
9
May 17 Notes Payable 255 2 0 0 0 00 2 0 6 0 00
Interest Expense 6 0 00
Jun 1 Notes Payable 263 6 0 0 0 00 6 1 8 0 00
Interest Expense 1 8 0 00
Back to General Journal
Back to Cash Receipts Journal
Assignment
• Do Application 23-2 by hand.• Turn it into Mrs. Middleton.• Move on to Section 23-3.
