What is the debtor's entry to record a note paid, with interest accrued in the previous year (assume there is no reversing entry)?
A) Debit Cash; credit Interest Receivable; credit Notes Receivable; credit Interest Income
B) Debit Notes Payable; debit Interest Expense; debit Interest Payable; credit Cash
C) Debit Cash; debit Interest Expense; credit Notes Payable
D) Debit Notes Receivable; debit Interest Income; credit Cash

Question

Quizplus · Accepted Answer

B) Debit Notes Payable; debit Interest Expense; debit Interest Payable; credit Cash. This entry correctly reflects the payment of a note along with the interest that has accrued. Notes Payable is debited to reduce the liability for the principal amount of the note. Interest Expense and Interest Payable are debited to account for the interest cost that has accrued up to the payment date. Cash is credited to reflect the outflow of cash to settle the note and the interest.

What Is the Debtor's Entry to Record a Note Paid