Describe the recording procedures for the issuance, retirement, and payment of interest for installment notes.
What will be an ideal response?
At issuance, the proceeds from a note must be recognized in the appropriate asset account and the debt must be recognized as a note payable. Each payment includes accrued interest expense plus a portion of the principal amount borrowed. Interest payments are recorded with a debit to Interest Expense, a debit to Notes Payable for the principal paid, and a credit to Cash for the amount of the total payment. The retirement of a note is recognized with a debit to Notes Payable and a credit to Cash (or other asset).
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