1. Accounting 3 Chapter 23 Section 2

2. Signing a Note Payable Current Liabilities – Liabilities due within a short time, usually within a year. Notes Payable are usually paid within one year so they are classified as Current Liabilities. When a business signs a note payable, the principal of the note is credited to a liability account titled Notes Payable. The principal amount is also debited to cash because the business receives that cash from the lender.

3. Journal Entry for signing of a Note Payable Cash Receipts Journal Page ___ Date Account Title Post Ref. GENERAL DEBITCREDIT Accts Rec. Credit Sales Credit Cash Debit Doc No. Sales Tax Payable Debit Credit Sales Dis. Debit 8 Mr13 Notes Payable R3025000.00 March 13. Signed a 90-day, 10% note, $5000.00. Receipt No. 302.

4. Paying Principal and Interest on a Note Payable When a note payable reaches its maturity date, the maker of the note pays the maturity value (which includes the principal plus interest) to the payee. The interest accrued on money borrowed is called interest expense and is debited to an account with the same name. Interest expense has a normal debit balance. However, it is a financial expense rather than a normal operations expense. Therefore it is listed in a classification titled Other Expenses in a chart of accounts.

5. June 11. Paid cash for the maturity value of the March 13 note: principal, $5000.00, plus interest, $125.00; total, $5,125.00. Check No. 627. Cash Payments Journal Page ___ DateAccount Title Post Ref. GENERAL DEBITCREDIT Accts Pay Debit Purch. Disc. Credit Cash Credit Ck No. Jn11Notes Payable627 5 0 0 0 00 5 1 2 5 00 Interest Expense 1 2 5 00

6. Signing a Note Payable for an Extension of Time. A business may ask for an extension of time if it is unable to pay an account when due. The vendor may ask the business to sign a note payable. The note payable does not pay the amount owed to the vendor. The form of liability is changed from an account payable to a note payable.

7. Signing a Note Payable for an Extension of Time. When the entry is posted, the balance of the Accounts Payable account will be zero and the Notes Payable will contain the amount due to the vendor. How to journalize on next slide.

8. April 5. Winning Edge signed a 60-day, 18% note to Pollard Supply for an extension of time on its account payable, $3000.00. Memorandum No. 47. General Journal Page ___ DateAccount Title Post Ref. Doc. No. DebitCredit 4 Apr5Accts Pay/ Pollard SupplyM47 3 0 0 0 00 Notes Payable 3 0 0 0 00

9. Paying a Note Payable Issued for an Extension of Time. The entry to record the cash payment at the maturity date of a note payable is the same regardless of the reason the note was signed. So basically journal the same way you do when you pay off any note.

10. Work Together p. 602. General Journal, this slide; Cash Receipts, next slide; Cash Payments, third slide.Cash Receipts, next slide Cash Payments, third slide General Journal Page ___ DateAccount Title Post Ref. Doc. No. DebitCredit Mar18Accts Pay/ DryCreek Co.M288 2 0 0 0 00 Notes Payable 3 Assignment

11. Cash Receipts Journal Page ___ Date Account Title Post Ref. GENERAL DEBITCREDIT Accts Rec. Credit Sales Credit Cash Debit Doc No. Sales Tax Payable Debit Credit Sales Dis. Debit 5 MR3 Notes Payable2796000.00 Back to General Journal Forward to Cash Payments Journal

12. Cash Payments Journal Page ___ DateAccount Title Post Ref. GENERAL DEBITCREDIT Accts Pay Debit Purch. Disc. Credit Cash Credit Ck No. 9 May17Notes Payable255 2 0 0 0 00 2 0 6 0 00 Interest Expense 6 0 00 Jun1Notes Payable263 6 0 0 0 00 6 1 8 0 00 Interest Expense 1 8 0 00 Back to General Journal Back to Cash Receipts Journal

13. Assignment Do Application 23-2 by hand. Turn it into Mrs. Middleton. Move on to Section 23-3.