Question

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 Accounts Payable; credit Notes Payable c. debit Notes Payable; credit Cash d. debit Cash and Interest Payable; credit Notes Payable

Answer 1

The journal entry used to record the issuance of a discounted note for the purpose of borrowing funds for the business is debit Cash and Interest Payable; credit Notes Payable.

Step-by-step explanation:

The correct journal entry used to record the issuance of a discounted note for the purpose of borrowing funds for the business is option d. debit Cash and Interest Payable; credit Notes Payable.

When a company issues a discounted note, it receives cash from the lender but at a price lower than the face value of the note. The difference between the face value and the discount is recorded as Interest Payable, as it represents the interest expense that will be incurred over the life of the note.

Cash is debited because it represents an increase in the company's cash balance, and Notes Payable is credited because it represents an increase in the company's liability for the borrowed funds.