Question

on august 1, a $30,000, 6%, 3-year installment note payable is issued by a company. the note requires equal payments of principal plus accrued interest of $11,223.34. the entry to record the first payment on july 31 would include:

Answer 1

TThe following would be the entry to reflect the very first payment effective July 31:

Cash debited $11,223.34

Credit $180 Credit Credit Interest Charges $11,043.34 throughout Principal Payable

The first instalment of the instalment note payable will be noted in this entry. Since the cash would be the asset being lowered, it must be debited.

Since it represents an expense related to the loan, interest payment is credited, whereas principle due is credited because it represents an obligation that is currently reduced. The very first payment of $11,043.34 in principal and the $180 in interest that was accumulated from August 1 to July 31 make up the total payment amount $11,223.34.

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