When a company accepts a note in settlement of a past due account, the effect on the accounting equation is
A) an increase in a liability and a decrease in an asset
B) an increase in an asset and a decrease in an asset
C) a decrease in an asset and a decrease in stockholders' equity (expense)
D) a decrease in a liability and an increase in stockholders' equity (revenue)

Question

Quizplus · Accepted Answer

When a company accepts a note in settlement of a past due account, one asset (accounts receivable) decreases while another asset (notes receivable) increases, leaving the overall accounting equation unchanged.

When a Company Accepts a Note in Settlement of a Past