Question

On January 1, Year 1, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, Year 3. The market rate of interest is 6% compounded annually. Assuming Notes Payable includes the accrued interest through year-end December 31, Year 2, the journal entry to record the payment of this note on January 1, Year 3 includes a ______.

Answer 1

The correct journal entries should be:

January 1, Year 3

Dr Notes Payable account 10,000

Cr Cash account 10,000

Step-by-step explanation:

Since Cash account is an asset, it should be credited when it decreases.

Since Notes Payable account is a liability, it should be debited when it decreases.