Question

How is Interest-Bearing Note different from Non-Interest Bearing Note?

How are the journal entries different for each of them? Provide examples of each joirnal entry.

Answer 1

Difference interest bearing and non interest bearing note:

1) Interest bearing notes refer to the notes on that interest is paid or given regularly and listed in the in the liability section of the balance sheet . Non interest bearing notes are notes on which no or zero interest is given or paid.

2) For non interest bearing notes calculation for implied interest is must, it has to be subtracted from note payable due on maturity date. But such calculation note required for non interest bearing note.

Journal entries for non interest bearing note :

Transactions	Account	Debit	Credit
Borrowed cash by singing a 12 month non interest bearing note with face value of $ 8,000 and present value of $ 7,273 received in cash.	Cash	$ 7,273
Discount on note payable	$ 727
Note payable		$ 8,000
Discount amortization [$ 727/12]	Interest expenses	$ 61
Discount on note payable		$ 61
Final payment at the end of term	Note payable	$ 8,000
Cash		$ 8,000

Journal entries for interest bearing note :

Transactions	Account	Debit	Credit
Borrowed $ 10,000 cash by singing a 10% interest bearing note payable for 12 months, interest will be paid annually	Cash	$ 10,000
Note payable		$ 10,000
Interest payment in maturity	Interest expenses	$ 1,000
Cash		$ 1,000
Principal payment for note at maturity	Note payable	$ 10,000
Cash		$ 10,000