What is the appropriate accounting entry for the payment of a loan at maturity?

When a loan reaches its maturity date, the borrower is obligated to repay the principal amount of the loan. The appropriate accounting entry to reflect this transaction effectively acknowledges the reduction in the company’s liabilities. By debiting Notes Payable, the entry directly reduces the liability account associated with the loan, showing that the debt is being settled.

In this context, Notes Payable represents the obligation to repay the loan, and debiting this account decreases its balance to reflect that the loan has now been paid off. This journal entry is critical because it ensures that the financial statements accurately depict the company's financial position after the loan repayment, allowing stakeholders to understand the reduced liabilities.

Other options reflect incorrect accounting treatments for this scenario. Debiting Cash would suggest that cash is being received rather than paid, which is not the case during a loan repayment. Debiting Interest Expense would imply that an interest payment is being recognized, not the repayment of the principal. Lastly, debiting Mortgage Payable would only be applicable if the specific loan was classified as such; in this case, it focuses on the broader category of Notes Payable rather than a specific account.