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Journal Entries for Note Issued at Face Value

When a company issues a note at face value, the company debits the cash account and credits the note payable account for the face value of the note (the lender, on the other hand, would debit note receivable and credit cash). When the borrower incurs interest, the borrower would debt interest expense and credit the cash account (if the interest is paid immediately; otherwise, the borrower would credit interest payable). The lender, on the other hand, would record interest revenue at each interest date. If interest is due quarterly, the interest payment would be calculated as follows: (annual interest rate x face value of the note) / 4 If interest is due monthly, the interest payment would be calculated as follows: (annual interest rate x face value of the note) / 12 When the borrower repays the note, the borrower should debit the note payable account (to remove the liability from its balance sheet) as well as account for the final interest payment. — Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world. — SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • A 44-PAGE GUIDE TO U.S. TAXATION • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • MANY MORE FREE PDF GUIDES AND SPREADSHEETS * http://eepurl.com/dIaa5z — SUPPORT EDSPIRA ON PATREON *  / prof_mclaughlin   — GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT * https://edspira.thinkific.com — LISTEN TO THE SCHEME PODCAST * Apple Podcasts: https://podcasts.apple.com/us/podcast... * Spotify: https://open.spotify.com/show/4WaNTqV... * Website: https://www.edspira.com/podcast-2/ — GET TAX TIPS ON TIKTOK *   / prof_mclaughlin   — ACCESS INDEX OF VIDEOS * https://www.edspira.com/index — CONNECT WITH EDSPIRA * Facebook:   / edspira   * Instagram:   / edspiradotcom   * LinkedIn:   / edspira   — CONNECT WITH MICHAEL * Twitter:   / prof_mclaughlin   * LinkedIn:   / prof-michael-mclaughlin   — ABOUT EDSPIRA AND ITS CREATOR * https://www.edspira.com/about/ * https://michaelmclaughlin.com