Bookkeeping Made Simple 42 Flashcards
1
Q
- p 97. Is INTEREST an EXPENSE or a REVENUE?
A
It is an EXPENSE when paid, and a REVENUE when received.
2
Q
- How do you enter INTEREST INCOME in the General Journal?
A
An INTEREST INCOME account is set up and CREDITED when a payment of interest is received, because it represents an INCREASE IN CAPITAL.
3
Q
- What is the entry for INTEREST INCOME?
A
Cash………70
Interest Inc…70
4
Q
- What is PROMISSORY NOTE?
A
A written commitment by one person to pay a definite sum of money to another at a specified future date.
5
Q
- What is an INSTALLMENT LOAN?
A
They are a form of PROMISSORY NOTE in which payments are made periodically rather than in a lump sum.
6
Q
- How is the entry for a PROMISSORY NOTE made?
A
Cash…50k
Notes Paya…50k
7
Q
- What is the entry when the note is paid?
A
Notes Paya.…50k
Interest Exp…533
Cash…………50,533
8
Q
- Sometimes interest on a note is paid in advance; this kind of note is called:
A
DISCOUNTED NOTE
9
Q
- The company borrows 5k for 30 days at 18% per year on a DISCOUNTED NOTE. The borrower receives:
A
$4,925 (5,000 - 75 interest), BUT MUST PAY BACK 5,000 AT MATURITY.
10
Q
- What is MATURITY?
A
The date when the LOAN COMES DUE.
11
Q
- The firm borrows 10k on June 1 in the form of a 90 day DISCOUNTED NOTE, where the interest was $1k. What is the entry?
A
Cash…………….9k
Interest Exp…..1k
Notes Paya……10k
12
Q
- When the note MATURES, the entry is:
A
Notes Paya….10k
Cash………..10k
