AccountingBLOCK

This is a start up business w/ made up financials. The transaction is:

Borrowed money from First National Bank (2 year note, you decide the interest rate).

Now if I were to write out this transaction, would I write.
Borrowed $20,000 from First National Bank with a 20% interest rate.

I would debit cash for 20 grand, and credit notes payable 20 grand. Then I would debit Interest Expense for 4 grand and credit cash for 4 grand.

does this sound right?

Thanks!!

The first entry is correct (setting up the note) The charge to the interest expense and cash is not. Depending on whether you are on the cash basis or accrual basis you do not record the interest until it is paid or if on the accrual basis when it is due.

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Zahid H. Lilani