Long term liabilities

Journal entry for long term notes payable

• It is formal written promise note to pay certain amount of money
• For current notes payable the payment due date is shorter than one year.
• A business has to pay not only the whole borrowed money, but plus interest fee.
• Accounting equation for notes payable:

ASSETS = LIABILITIES + OWNER’S EQUITY

CASH Notes payable

+ 20000 won + 20 000 won

Notes payable

Long term notes payable amortization schedule

• Imagine, company paid back notes payable (20 000won ) with 1000 won additional interest fee.

ASSETS = LIABILITIES + OWNER’S EQUITY

CASH Notes payable Retained earnings

- 21000 won - 20 000 won - 1000 won

Usually, interest rate is given for a year. That’s why when a business takes short-term debt, the interest fee is calculated only the period of debt.

Journal entry for repay the notes payable:

• Notes payable 20 000 won
• Interest expense 1000 won
• Cash 21 000won

Paying the current notes payable