notes payable journal entries
Financial accounting-ii Receivables
Pokhara University (PU) 2017 Fall Q. No. 15
Civil Company issued 9 months promissory note on 1st November, 2015 for cash. The interest rate on the note was 12% p.a. The amount of note was Rs. 100,000.
Required: Prepare all necessary journal entries on issue, year end and maturity date on note. [10]
Solution
Journal entries
In the book of Civil Company
1st November 2015
Cash account a/c Dr. Rs. 100,000
Notes payable a/c Rs. 100,000
(To record the issue of promissory note for nine months)
31 December 2015
Interest expenses a/c Dr. Rs. 2,000
Interest payable a/c Rs. 2,000
(To record the interest on a note for the two months)
31 July 2016
Interest expenses a/c Dr. Rs. 7,000
Interest payable a/c Dr. Rs. 2,000
Notes payable a/c Dr. Rs. 100,000
Cash a/c Rs. 109,000
(To record the payment for the note payable along with interest and principal.)
Here, in notes payable journal entries
Two months interest expenses = 12% of 100,000 × 2/12 = Rs. 2,000
Seven months interest expenses = 12% of 100,000 × 7/12 = Rs. 7,000