The journal entry a company uses to record the issuance of a discounted note for the purpose of borrowing funds for the business is
A) debit Cash and Interest Expense; credit Notes Payable
B) debit Cash and Interest Payable; credit Notes Payable
C) debit Accounts Payable; credit Notes Payable
D) debit Notes Payable; credit Cash

Question

Quizplus · Accepted Answer

When a company issues a discounted note, it receives cash less than the face value of the note. The difference is recorded as interest expense. Therefore, the correct entry is to debit Cash for the amount received, debit Interest Expense for the discount, and credit Notes Payable for the face value of the note.

The Journal Entry a Company Uses to Record the Issuance