The 3,000 dollars would be a credit in the liability account (whatever you like i.e. mom&pop creditors a/c) then the corresponding 3,000 USD received would be debit to the bank account.
The interest payments would be expensed annually when the interest payment occurs; i.e. year 1; Debit $300 year 2; Debit $300... so on and so forth
The remaining principle - $3000 lies in the liability accounts until it is paid from the bank account.
"The corporation also borrows $3,000 on a 5-year note from your parents to provide additional financing. Interest payable annually at 10%. Total principle not payable till end of 5 year term."
Can you guys explain to me how to do this journal entry and explain what it means?
