Notes payable journal entry
Financial Accounting-ii – Receivable
Pokhara University (PU) 2016 Spring Q. No. 15
On magh 1, 2072 Pokhara Trading House borrowed Rs. 10,00,000 from the Nepal Investment Bank. This House signed a 6 month, 9% promissory note for the entire amount. It uses a calendar year end.
Required: What adjustments would be made on the year end? Also show the journal entries for the payments of principal and interest on the due date. [10]
Solution:
Journal Entries
In the book of Pokhara Trading House
Chaitra 31, 2072
Interest expenses a/c Rs. 22,500
Interest payable a/c Rs. 22,500
(To record the interest on notes for the three months)
Ashad 31, 2073
Interest expenses a/c Dr. Rs. 22,500
Interest payable a/c Dr. Rs. 22,500
Notes payable a/c Dr. Rs. 10,00,000
Cash a/c Rs. 10,45,000
(To record the payments of notes payable, interest payable, and interest expenses)
Here, in notes payable journal entry,
Interest expenses for three months = 9% of Rs. 10,00,000 × 3/12 = Rs. 22,500