1. When a company issues a note payable to borrow funds, the journal entry is to debit cash and credit notes payable. This records the increase in assets from the cash received and the increase in liability from the note issued. 2. A current liability is a debt that is expected to be paid within one year. 3. The current portion of long-term debt, which is the amount that is due to be paid within the next year, should be reclassified as a current liability.

1. 1- The journal entry a company uses to record the issuance of an interest-bearing note for the
purpose of borrowing funds for the business is
A. debit Accounts Payable; credit Notes Payable
B. debit Cash; credit Notes Payable
C. debit Notes Payable; credit Cash
D. debit Cash and Interest Expense; credit Notes Payable
2-Â Â A current liability is a debt that is reasonably expected to be paid
a. between 6 months and 18 months
. b. out of currently recognized revenues.
c. within one year.
d. out of cash currently on hand.
3-Â Â The current portion of long-term debt should
a. be classified as a long-term liability.
b. not be separated from the long-term portion of debt
c. be paid immediately.
d. be reclassified as a current liability.
Solution
(‘1) Notes payable - A notes payable is a promissory notes that a business issue to a creditor
to borrow or buy a credit.

2. When we take a loan we received cash hence our assets increased. So debit the cash.
Because we have issued notes so our liability is increased, hence credit the notes payable.
Option (B) is correct Answer- Debit the cash and credit the notes payable.
(‘2 ) Current Liability- Current liability is a debt or obligation which is due within one year
of the date of a balance sheet date. They appear on balance sheet and includes short term debt,
accounts payable, accrued liabilities etc. which are payable within one year as on balance sheet
date. The basic idea behind one year consideration is that normally operating cycle of business is
one year. Actual payment does not decide the nature.
Option (c ) is correct answer.
(‘3) Current Portion of Long term debt- Current portion of a long term debt is a part of long
term debt that should be paid within a year as on balance sheet date. This should be shown as
separate line in balance sheet as “Current Portion of Long Term Debt― and classified as
current liability.
Option (D) is correct answer.