General journal and ledger T-accounts are shown below.

Illustration 22: Journal entries for illustration of warranties accounting

Illustration 23: T-accounts for illustration of warranties accounting

We will not show financial statements for this accounting period because they are similar to those from the previous period. Note that Warranties Payable are included in the liabilities sector on the balance sheet.

So far we have been dealing with interest-bearing notes. When such a note is matured, face value plus accrued interest are to be paid.

Interest-bearing notes require an interest to be paid in addition to the face value. In other words, such notes require the borrower to pay the face value and interest at the maturity date.

In contrast, there is another type of notes called Discount Notes that have the interest included in the face value.

Discount bonds are bonds that have interest included in the face value. When the note matures, the borrow only pays the face value, which includes interest in it.

For example, a $3,000 face value discount note is repaid with $3,000 cash that contains both the face value and the accrued interest. The illustration below provide a good example of accounting for discount notes.