The journal entry used to record the payment of an interest-bearing note is
A) debit Cash; credit Notes Payable
B) debit Accounts Payable; credit Cash
C) debit Notes Payable and Interest Expense; credit Cash
D) debit Notes Payable and Interest Receivable; credit Cash

Question

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When a company pays off an interest-bearing note, it needs to record both the principle amount of the note and the accrued interest expense. Therefore, the appropriate journal entry is to debit both the Notes Payable and Interest Expense accounts and credit the Cash account. Option A is incorrect because it only records the principle amount of the note, while option B is incorrect because it implies that the company is paying off an accounts payable balance instead of a note payable. Option D is incorrect because it includes an Interest Receivable account, which only applies if the company is receiving interest income instead of paying interest expense.

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