The journal entry used 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 discounted note is issued for borrowing purposes, the business receives cash (debit Cash) and recognizes the cost of borrowing (interest expense) upfront (debit Interest Expense). The liability for the note is recorded by crediting Notes Payable.

The Journal Entry Used to Record the Issuance of a Discounted