The journal entry used to record the issuance of an interest-bearing note for the purpose of borrowing funds for the business is
A) debit Accounts Payable; credit Notes Payable
B) debit Cash; credit Notes Payable
C) debit Notes Payable; credit Cash
D) debit Cash and Interest Expense; credit Notes Payable

Question

Quizplus · Accepted Answer

When a business issues an interest-bearing note to borrow funds, it receives cash, so Cash (an asset) is debited. Notes Payable (a liability) is credited because the business now owes this amount. The interest expense is not recorded at the time of borrowing but rather over the period the note is outstanding.

The Journal Entry Used to Record the Issuance of an Interest-Bearing