Answer:
When you record the loan the journal entry should be:
- Dr Cash account xxx
- Cr Notes Payable account xxx
Cash was received so it must increase, while a liability is created.
When you record interest accrual the journal entry should be:
- Dr Interest Expense account yyy
- Cr Interest Payable account yyy
Interest is an expense therefore it should be debited, since it hasn't been paid yet it is a liability.
