The business would record this transaction using the following flows and accounts:

1. Cash Flow: The business would record an outflow of cash of $500. This is because the business is paying out money to service its loan.

2. Interest Expense: The business would record an interest expense of $500. This is the cost that the business incurs for borrowing money.

3. Loan Payable: The loan payable account would not change because the business is only paying the interest on the loan, not reducing the principal amount of the loan. The loan payable would still remain at $50,000.

So, the journal entry would look something like this:

Debit (increase) Interest Expense $500
Credit (decrease) Cash $500

This records the fact that the business has spent $500 in cash to pay the interest on its loan, increasing its interest expense for the period.

Question

The business would record this transaction using the following flows and accounts:

1. Cash Flow: The business would record an outflow of cash of $500. This is because the business is paying out money to service its loan.

2. Interest Expense: The business would record an interest expense of $500. This is the cost that the business incurs for borrowing money.

3. Loan Payable: The loan payable account would not change because the business is only paying the interest on the loan, not reducing the principal amount of the loan. The loan payable would still remain at $50,000.

So, the journal entry would look something like this:

Debit (increase) Interest Expense $500
Credit (decrease) Cash $500

This records the fact that the business has spent $500 in cash to pay the interest on its loan, increasing its interest expense for the period.

Knowee AI · Accepted Answer

The business would record this transaction using the following flows and accounts:

1. Cash Flow: The business would record an outflow of cash of $500. This is because the business is paying out money to service its loan.

2. Interest Expense: The business would record an interest expense of $500. This is the cost that the business incurs for borrowing money.

3. Loan Payable: The loan payable account would not change because the business is only paying the interest on the loan, not reducing the principal amount of the loan. The loan payable would still remain at $50,000.

So, the journal entry would look something like this:

Debit (increase) Interest Expense $500
Credit (decrease) Cash $500

This records the fact that the business has spent $500 in cash to pay the interest on its loan, increasing its interest expense for the period.

The business has a loan of $50,000 and makes interest-only repayments of 1% interest per month. It is the end of the month and they are making their $500 interest payment. Select the flows and accounts that the business would use to record this transaction.

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