Check Note Payable Journal Entry Example With Balance sheet

by ADAMOctober 04, 20230 Comments

Welcome back to our blog today we are going to show a real-world problem related to notes payable. 


In this post, we add a scenario for note payable and then make a note payable journal entry this example can help you to clear all the basic requirements about note payable.


Note Payable Journal Entry Example

Example:- ABC Manufacturing, a small manufacturing company, is looking to expand its operations and needs additional funding to purchase new machinery and hire more employees. The company's current cash reserves are not sufficient to cover the expansion costs, so they need to find a solution to secure the necessary funds.


Account TitlesDebit ($)
Machinery (or Equipment)[Cost of the machinery]
Cash (or Bank)[Amount received for the note]


Description: ABC Manufacturing borrows $X to purchase new machinery for its expansion.


Explanation:


  • Machinery (or Equipment): This account represents the cost of the new machinery purchased for the expansion. Debit this account for the cost of the machinery, which is an asset.


  • Cash (or Bank): ABC Manufacturing received the funds from the issuance of the note, which they will use to finance the machinery purchase and other expansion costs. Credit the "Cash" or "Bank" account for the amount received.


 Balance Sheet Example For Note Payable 

In this example, we take 10,000 rupees and remember this example is an illustrative purpose only.

ABC Manufacturing

Balance Sheet as of [Date]

  • Assets:

Current Assets:

  • Cash:  10,000
  • Accounts Receivable: 10,000
  • Inventory: 10,000
  • Other Current Assets (if applicable): 10,000

Non-Current Assets:

  • Machinery and Equipment: 10,000
  • Land and Buildings: 10,000
  • Other Non-Current Assets (if applicable): 10,000
  • Total Assets: 70,000

  • Liabilities:

Current Liabilities:

  • Accounts Payable: 10,000
  • Short-Term Loans (if applicable): 10,000
  • Accrued Expenses: 10,000
  • Notes Payable (if applicable): 10,000
Non-Current Liabilities:

  • Long-Term Loans (if applicable): 10,000
  • Other Non-Current Liabilities (if applicable): 10,000

  • Total Liabilities: 50,000

  • Equity:

  • Owner's Equity (Shareholder's Equity): 20,000
  • Common Stock: 10,000
  • Retained Earnings: 10,000

Total Equity: 20,000

Total Liabilities and Equity: 70,000


Conclusion


Here in this post, we add a note payable journal entry example with its balance sheet so if you are an accounting student then you should read this post till the end.


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