Prepare journal entries for the below transactions.
a. Borrowed cash from a bank and signed a note for $11,900.
b. Paid the bank the amount borrowed in (a).
c. Purchased $9,800 of equipment, paying $4,900 in cash and signing a note due to the manufacturer.
Notes payable is a liability account which represents the value of the promissory notes issued by a company. The existence of a written promise to pay, the promissory note, is what separates these liabilities from accounts payable. Notes sometimes carry an interest rate, but not always.
Answer and Explanation:
|a.||Cash||$11,900||Record inflow of cash from borrowing|
|Notes Payable||$11,900||Record value of note payable|
|b.||Notes Payable||$11,900||Remove note upon payment|
|Cash||$11,900||Record outflow of cash made in payment of note|
|c.||Equipment||$9,800||Record value of equipment purchased|
|Cash||$4,900||Record outflow of cash made to purchase equipment|
|Notes Payable||$4,900||Record value of note signed for remaining balance ($9,800 - $4,900)|
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from Financial Accounting: Help and ReviewChapter 8 / Lesson 7