Borrowed $20,000 from a local bank and signed a 3-year note payable promising to pay 10% interest per year (interest is due and recorded on Dec 31).

cash 20,000 debit

note payable 20,000

--to record sign of the note--

interest expense 2,000 debit

interest payable 2,000 credit

--to record accrued interest--

interest expense 2,000 debit

interest payable 2,000 credit

--to record accrued interest--

note payable 20,000 debit

interest expense 2,000 debit

interest payable 4,000 debit

cash 26,000 credit

--to record maturity of the note--

Explanation:

principal x rate x time = interest

20,000 x 10% x 1 year = 2,000 interest expense per year

At maturity we have to pay principal and all accrued interest for the three 3-year period.

te previous two year are payable and the current interest expense

The total cash outlay will be 20,000 principal + 2,000 x 3 = 6,000 cash on interest.