Borrow 000 000 from bank to be repaid in equal annual installments over 5 years (i. e. 000 to be repaid at end of each year: receive cash; pay back in 30 days, entry today: Cr notes payable : entry in 30 days: Cr loan payable 000 000: 1st month"s interest. Cr cash or interest payable: when repay at year end: Sign a promissory note for due in 30 days plus interest at 12% per annum. Interest in charged and owed as time passes. Example: on september 1st, abc corp. signs a 6 month promissory note for 000 + interest at 6% per annum, year-end date december 31 (balance sheet date) for interest. Legally, they owe 000 + 4 months interest therefore they must record liability. On december 31, owe 000 x 6% x 4/12 = .