During the year, Calabash Clinic made a $50,000 cash payment toward its bank loan, which it had previously recorded; $40,000 was for principal, and $10,000 was to pay the full amount of interest due. What is the best way for this transaction to be recorded?

Question

Business

Aleena Mueller

21 August, 16:45

During the year, Calabash Clinic made a $50,000 cash payment toward its bank loan, which it had previously recorded; $40,000 was for principal, and $10,000 was to pay the full amount of interest due. What is the best way for this transaction to be recorded?

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Answers (1)

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Deacon Buck · Answer 1

Dr Interest Payable $10,000

Cr Notes Payable $40,000

Cr Cash $50,000

Explanation:

When the loan was raised the entry was:

Dr Cash $40,000

Cr Notes Payable $40,000

The interest on this loan was accounted for:

Dr Interest Expense $10,000

Cr Interest Payable $10,000

So the correct entry for paying interest and principal amount would be:

Dr Interest Payable $10,000

Cr Notes Payable $40,000

Cr Cash $50,000