The entry to record the borrowing of cash by issuing a note was recorded with a debit to Cash and a credit to Notes Receivable.The effect of recording this entry causes:
A)assets to be understated.
B)liabilities to be overstated.
C)stockholders' equity to be understated.
D)stockholders' equity to be overstated.

Question

Quizplus · Accepted Answer

The entry should have included a debit to Cash,an asset,and a credit to Notes Payable,a liability.The correction would include a debit to Notes Receivable (to reverse the increase to this account)and a credit to Notes Payable (to correctly increase this account).If the original entry is not corrected,assets are understated and liabilities are understated.

The Entry to Record the Borrowing of Cash by Issuing