Notes Payable

A business issued a 90-day, 7% note for $30,000 to a creditor on account. Illustrate the effects on the accounts and financial statements of recording (a) the issuance of the note and (b) the payment of the note at maturity, including interest.

If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts.

a. Illustrate the effects on the accounts and financial statements of recording the issuance of the note.

Statement of Cash Flows

Balance Sheet

Income Statement

Assets

=

Liabilities

+

Stockholders' Equity

No effect

=

Accounts payable

+

Notes payable

+

No effect

Statement of Cash Flows

Income Statement

No effect

No effect

b. Illustrate the effects on the accounts and financial statements of recording the payment of the note at maturity, including interest. Assume a 360-day year.

Statement of Cash Flows

Balance Sheet

Income Statement

Assets

=

Liabilities

+

Stockholders' Equity

Cash

=

Notes payable

+

Retained earnings

Statement of Cash Flows

Income Statement

Operating

Interest expense