Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

When a corporation pays a note payable and the related interest, which of the following journal entries is correct?

Debit Notes Payable, Debit Interest Expense, Credit Cash

Debit Notes Payable, Credit Interest Expense, Credit Cash

Debit Interest Expense, Credit Notes Payable, Credit Cash

Debit Cash, Credit Notes Payable, Credit Interest Expense

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Verified step by step guidance

Step 1: Understand the nature of the transaction. When a corporation pays a note payable and the related interest, it is reducing its liability (Notes Payable) and recording the expense incurred for interest (Interest Expense). Cash is credited because it is being used to settle the liability and expense.

Step 2: Recall the rules of debits and credits. Liabilities (Notes Payable) decrease with a debit, expenses (Interest Expense) increase with a debit, and assets (Cash) decrease with a credit.

Step 3: Analyze the journal entry components. To record the payment, you need to debit Notes Payable to reduce the liability, debit Interest Expense to recognize the cost of borrowing, and credit Cash to reflect the outflow of funds.

Step 4: Compare the options provided in the problem. The correct journal entry should match the accounting principles outlined above: Debit Notes Payable, Debit Interest Expense, Credit Cash.

Step 5: Verify the logic of the other options. For example, 'Debit Notes Payable, Credit Interest Expense, Credit Cash' incorrectly credits Interest Expense, which should be debited to reflect the incurred cost. Similarly, 'Debit Interest Expense, Credit Notes Payable, Credit Cash' and 'Debit Cash, Credit Notes Payable, Credit Interest Expense' do not align with the proper accounting treatment for this transaction.