Question

Jan 3. The salon incurred some office expenses and sign 3 months note payable in the amount of 1,200. The note required the salon to pay interest at an annual rate of 10%.

how will be recording the transaction?

Answer 1

Answer

Notes payable are liabilities and represent amounts owed by a person to a third party.

Short term notes payable (due within one year) are classified under current liabilities in the balance sheet, long term notes payable (due day exceeding one year) are classified as long term liabilities in the balance sheet.

Journal entries

Date	Particulars	Debit ($)	Credit ($)
January 3	Office expenses payable a/c	1,200
	To Notes payable a/c		1,200
April 3	Notes payable a/c	1,200
	Interest expense a/c (Note)	30
	To Cash		1,230

Note -

Interest expense = (1,200 * 10%) * 3/12

                               = $30