Giff Services Company experienced some difficulties with cash flow so it approached one of its vendors about a payment extension. The vendor agreed to the extension on the condition that the company sign a note that includes 9% interest. What is the impact on the accounting equation of recording a note payable in exchange for the account payable?
A)Both assets and liabilities increase.
B)Both assets and liabilities decrease.
C)Liabilities increase and stockholders' equity decreases.
D)There is no net impact, as there are corresponding increases and decreases in liability accounts.

Question

Quizplus · Accepted Answer

Recording a note payable in exchange for an account payable swaps one liability (accounts payable) for another (notes payable), without affecting the total amount of liabilities or assets, hence no net impact on the accounting equation.

Giff Services Company Experienced Some Difficulties with Cash Flow So