Question

what is the entry a company records at the time it issues a $1,000, 6% note to one of its employees that the employee needs to repay in 6 months? (select all that apply.) multiple select question. credit notes payable credit cash debit notes receivable debit cash credit interest revenue debit notes payable

Answer 1

At the moment of issuing a $1,000, 6% note payable to an employee, a company debits its Cash account and credits its Notes Payable account for $1,000 to reflect the liability and the outflow of cash.

Step-by-step explanation:

When a company issues a note payable, it is recording a liability because it is money that the company will have to pay back in the future. In the case of issuing a $1,000, 6% note to an employee that must be repaid in 6 months, at the time of the note issuance, the company should make the following accounting entries:

• Debit Cash: $1,000
• Credit Notes Payable: $1,000

The Debit to Cash reflects the increase in the company's cash balance, representing money given to the employee. The Credit to Notes Payable represents the creation of a liability on the company's balance sheet, which is the legal obligation to repay the note.

Interest is not recorded at the time of the note issuance. Interest will be recorded periodically (e.g., monthly or semiannually) as it accrues over the life of the note, based on the 6% annual interest rate.