CH 9 & 10 REVIEW
9.1-Notes Payable
• What is a note payable?
• Short term loan that charges interest
• How is Notes Payable Classified?
• Liability
• Journalize the following transaction:
May 15: Signed a 90-day, 10% note, $2000. R34
Journal?
Cash Receipts
Dr. Cash
$2,000
Cr. Notes Payable $2,000
May 15: Signed a 90-day, 10% note,
$2000. R34
• What is the maturity date?
August 13, 2014
• How much interest is charged?
$50
• Journalize the Transaction (C88):
Journal?
• Cash Payments
Dr. Notes Payable
$2000
Dr. Interest expense
$50
Cr. Cash
$2050
9.2-Prepaid Expenses
Recording Supplies as an Expense:
• Journalize the following transaction
September 5. Purchased supplies for cash, $1000. C89
Dr. Supplies Expense
$1000
Cr. Cash
$1000
On December 31, supplies on hand is $250.
Record the adjusting entry:
Dr. Supplies
$250
Cr. Supplies Expense
$250
Why?
At the end of the fiscal period, supplies is now considered
an asset and the value of supplies should be recorded on
the Balance Sheet as a Asset.
Recording supplies as an expense (cont.)
Record the closing entry
Dr. Income Summary
$750
Cr. Supplies Expense
$750
Why?
Temporary accounts are closed, the balance of the supplies
expense account is $1,000-$250
Record the Reversing Entry
Dr. Supplies Expense
$250
Cr. Supplies
$250
Why?
Since supplies are initially recorded as an expense, there
are $250 worth of supplies that could be used in the next
fiscal period.
9.3 Accrued Expenses
Journalize the following transaction:
November 10. Signed 90-day, 10% note, $2000.
Dr. Cash
$2,000
Cr. Notes Payable
$2,000
December 31, record adjusting entry:
Dr. Interest Expense
$28.33
Cr. Interest Payable
$28.33
Why?
Because there were 51 days in which interest accrued on
this note and was not paid. The interest must be recorded
in the fiscal period in which the expense incurred.
9.3 Accrued Expenses
November 10. Signed 90-day, 10% note, $2000.
Record Closing Entry
• Dr. Income Summary
$28.33
• Cr. Interest Expense
$28.33
Why?
Interest Expense is a temporary account
Record Reversing Entry
• Dr. Interest Payable
$28.33
• Cr. Interest Expense
$28.33
Why?
• This will give close Interest Payable and give Interest
Expense a CREDIT balance. When the note is paid, the
total interest expense is recorded as a debit. The balance
will then reflect the expense of the next fiscal period
9.3 Accrued Expenses
November 10. Signed 90-day, 10% note, $2000.
Record the payment of the Note
• Dr. Notes Payable
$2000
• Dr. Interest Expense
$50
• Cr. Cash
$2050
What is the balance of the Interest Expense account?
$21.67
Why?
• This is the interest expense for the current fiscal period.
$28.33 was recorded in the previous fiscal period.
10.1- Notes Receivable (Cont.)
Issuing a Note for a Sale
June 19. Accepts a 90-day, 10% note from Shelly Swag,
$800 for the sale of computer equipment. NR56
• Dr. Notes Receivable
$800
• Cr. Sales
$800
Why?
• NR is debited because a note was issued instead of
charging an account receivable. A/R are typically due in
30 days, in this case, they needed 90 to pay. Sales is
credited because merchandise was sold at the time of the
transaction.
10.1- Notes Receivable (Cont.)
Receiving cash for note
• June 19. Accepts a 90-day, 10% note from Shelly Swag,
$800 for the sale of computer equipment. NR56
What is the journal entry for the cash receipt of this note?
Use Receipt 87 as the source doc.
• Date? September 18
• Dr. Cash
$820
• Cr. Notes Receivable
$800
• Cr. Interest Income
$20
10.1- Notes Receivable
Issuing a note for an account receivable
July 10, accepts a 30-day, 10 % note from Fourman Chap
for an extension on his account. $400 NR 22
• Dr. Notes Rec
$400
• Cr. Accts. Rec./Fourman Chap
$400
Why?
• Fourman could not pay the balance on his account, so the
business agreed to give a NR and charge interest to give
Fourman an opportunity to pay within the next 30 days.
10.1- Notes Receivable (Cont.)
Recording a Dishonored Note Receivable
• July 10, accepts a 30-day, 10% note from Fourman Chap
for an extension on his account. $400 NR 22
Fourman did not honor is note, journalize the transaction.
Use Memo 94
• Date: August 9
• Dr. Accts. Rec./Fourman Chap
$403.33
• Cr. Notes Receivable
$400.00
• Cr. Interest Income
$3.33
• Why?
• The debt still exists, however, notes cannot be written off
like accounts receivable accounts, therefore, the principal
and interest is transferred to A/R.
10.1- Notes Receivable (Cont.)
Receiving cash for a dishonored note, that was
transferred to accounts receivable.
• September 15, received cash from Fourman Chap for
dishonored NR. Maturity Value $403.33, plus additional
interest. R79
How many days is interest charged?
• August 9-September 15: 37
• Dr. Cash
$407.48
• Cr. Accts. Rec./Fourman Chap
$403.33
• Cr. Interest Income
$4.15
10-2 Unearned Revenue
• Received cash from Ile Neslin, $4,200 for 6 months of
rent on August 1. R1.
Journalize the transaction
• Dr. Cash
$4,200
• Cr. Rent Income
$4,200
Record the adjusting entry
• Dr. Rent Income
$700
• Cr. Unearned Rent
$700
• Why?
Earned revenue ($3,500) and unearned revenue ($700)
must be separated. Unearned rent is the amount that will
be earned in the next fiscal period. It is considered a
liability.
10.2 Unearned Revenue
Closing Entry-What account gets closed?
• Rent Income
Reversing Entry
• Dr. Unearned Rent
$700
• Cr. Rent Income
$700
Why?
• Close unearned rent and to create a $700 balance in Rent
Income to show the Income that is earned for January.
10.2 Accrued Interest Income
December 12. Accepts 60-day 10% note from Mary
Ingsaler, for the sale of computer equipment. $300 NR3
• Dr. Notes Receivable
$300
• Cr. Sales
$300
Record the Adjusting Entry on December 31.
• Dr. Interest Receivable
$1.58
• Cr. Interest Income
$1.58
• Why?
• Interest was earned for 19 days during the first fiscal
period. It must be recorded in the fiscal period in which
interest was earned.
December 12. Accepts 60-day 10% note from Mary Ingsaler, for
the sale of computer equipment. $300 NR3
• Which account gets closed?
• Interest Income
• What is the reversing entry?
• Dr. Interest Income
• Cr. Interest Receivable
$1.58
$1.58
• Why?
• To close the Interest Receivable account and to create a
debit balance in Interest Income. When cash for the note
is received, it will include the total interest from the note.
The interest will be credited to Interest Income, creating a
balance that represents interest earned in the current
fiscal period.
• Journalize the cash receipt of the note.
• Feb. 10
• Dr. Cash
• Cr. Notes Receivable
• Cr. Interest Income
$305
$300
$5