Question

On 8/30/16 a company borrows $18,000 from a local bank. The principal is required to be paid in four annual installments of equal amounts ($4,500), beginning 8/30/17. The annual interest rate is 4%. The interest is payable annually, starting on 8/30/17. Which of the following statements is correct about the journal entries recorded by the company on 8/30/16? A balance sheet account is debited for $18,000 and an income statement account is credited for the same amount A balance sheet account is debited for $18,000 and another balance sheet account is credited for the same amount An income statement account is debited for $720 All of the above are correct No entry is recorded on 8/30/16 None of the above is correct

Answer 1

Answer: A balance sheet account is debited for $18,000 and another balance sheet account is credited for the same amount.

Explanations:

Journal entry for the company borrowed from bank:

Date	Account tittle and Explanation	Debit	Credit
8/30/2016	Cash	$18,000
	Notes payable		$18,000
	[To record cash borrowed from bank]

Here, Both Cash & Notes payable are 'Balance sheet Accounts'.

Cash is an Asset & Notes payable is a Liability. Both accounts to be shown in the 'Balance Sheet'.

So that, one balance sheet account is debited for $18,000 and another balance sheet account is credited for '$18,000'.