Notes Payable

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A. Interest Expense

Principal x Rate x Time = Interest Expense

B. Illustration of Notes Payable

        On November 1, Max Company borrows $100,000 by signing a 3-month note
        at 12% interest.  Interest is payable on the due date.

        > November 1 - Date of Issuance

                                                  Debit       Credit
                                                 -------     -------
          Cash                                   100,000
             Notes Payable                                   100,000

        > December 31 - Year end accrual of interest

          Interest Expense (100,000 x 12% x 2/12)  2,000
             Interest Payable                                  2,000

        > February 1 - Repayment of note and interest

          Notes Payable                          100,000
          Interest Payable                         2,000
          Interest Expense (100,000 x 12% x 1/12)  1,000
             Cash                                            103,000

         Note: For a longer term note, interest would have to be accrued
               each year before the issuance of financial statements.