When the liability occurred口50,000Dr.MaterialCr.AccountsPayable50,000If thepayment was madewithin10 daysDr.Accounts Payable50,00049,000Cr.CashPurchase Discount1,000Ifthepaymentwasmadeafter10days日Dr.AccountsPayable50.00050,000Cr.Cash6
6 Dr. Material 50,000 Cr. Accounts Payable 50,000 When the liability occurred If the payment was made within 10 days If the payment was made after 10 days Dr. Accounts Payable 50,000 Cr. Cash 49,000 Purchase Discount 1,000 Dr. Accounts Payable 50,000 Cr. Cash 50,000
(2)NotesPayableDefinitionNotesPavableareformal short-termborrowingsusuallyevidencedbya specificwrittenpromiseto payandmostlyissuedto meet short-term financing needs.Notespayableare oftenusedinstead ofaccountspayablebecausethey give thelenderwrittendocumentationoftheobligation
7 (2)Notes Payable Definition ➢ Notes Payable are formal short-term borrowings usually evidenced by a specific written promise to pay and mostly issued to meet short-term financing needs. ➢ Notes payable are often used instead of accounts payable because they give the lender written documentation of the obligation
AccountingTreatmentNotespayabletypicallyinvolveinterests.Whenthe note is repaid,the differencebetween thecarrying amount of the note and the cashnecessary torepaythat noteisreportedasinterestexpense.WhentheliabilityoccursDr.AssetsCr.Notes PayableWhenthenoteispaid口Dr.NotesPayableInterestexpenseCr Cash8
8 Accounting Treatment Notes payable typically involve interests. When the note is repaid, the difference between the carrying amount of the note and the cash necessary to repay that note is reported as interest expense. When the liability occurs When the note is paid Dr. Assets Cr. Notes Payable Dr. Notes Payable Interest expense Cr. Cash
AccountingTreatmentwhenthereisaccrued interestDr.InterestExpenseCr.InterestPayable口Dr.NotesPayableInterest PayableCr. Cash9
9 when there is accrued interest Dr. Interest Expense Cr. Interest Payable Dr. Notes Payable Interest Payable Cr. Cash Accounting Treatment
ExampleKroger purchased a batch of merchandise of$20,000 on May 1, and signed a 3-month, 6% noteWhentheliability occurred20.000口Dr.Merchandise20.000Cr.NotesPayable10
10 Example Kroger purchased a batch of merchandise of $20,000 on May 1, and signed a 3-month, 6% note. When the liability occurred Dr. Merchandise 20,000 Cr. Notes Payable 20,000