Question

>Paid 25,000 of principle and 1250 of interest expense on the note payable to first bank

Paid 10,000 on the mortgage principle and 800 of interest expense to commerece bank

How would i Jornalize this in accounting can somone help me and explain to me thanks

Answer 1

Journal Entries to be passed for both of the transactions mentioned in the question are as follows:

S. No.	Account Titles and Explanations	Debit ($)	Credit ($)
1	Notes Payable	25,000
	Interest Expense	1,250
	Cash		26,250
	(Being payment of note payable alongwith interest)
2	Mortgage payable	10,000
	Interest Expense	800
	Cash		10,800
	(Being payment of mortgage payable alongwith interest)

Explanation:

1. Mortgage and Note payable are both liabilities on which we pay interest for the period of time mentioned in the mortgage contract or on the Note Payable.

2. In the above entries, you will notice that the journal entries passed for both transactions is quite similar. This is because "Mortgage" and "Note Payable" despite having different meanings have an accounting treatment which is similar to the accounting treatment of a "Loan". This means that when cash is received against a loan, we debit cash and credit loan account. When payment of principal amount of loan is made, we debit the Loan account so as to reduce the liability and we credit the cash account because cash is going out.

3. Similarly, we debit Interest expense becausse we have incurred that expense and we credit cash for that amount because we have paid cash and cash if lwoing out of the entity.