When a note is received from a customer to obtain an extension of time for payment on a past-due account, the journal entry would include
A) debiting Accounts Receivable and crediting Notes Receivable.
B) debiting Accounts Payable and crediting Notes Payable.
C) debiting Notes Payable and crediting Accounts Payable.
D) debiting Notes Receivable and crediting Accounts Receivable.

Question

Quizplus · Accepted Answer

When a customer requests for an extension of time for payment on a past-due account, it is common practice to create a written agreement known as a promissory note. Therefore, the journal entry would involve debiting the account for the amount owed (Accounts Receivable) and crediting a new account for the promissory note that will now be owed by the customer (Notes Receivable). This is reflected in choice D.

When a Note Is Received from a Customer to Obtain