If the maker of a note defaults,an entry is made which debits Accounts Receivable and credits Notes Receivable.

Question

Quizplus · Accepted Answer

If the maker of a note defaults, it means they cannot pay their debt. In accounting, this results in a recognition of a loss and a reversal of the initial entry made when the note was created. The initial entry debited Notes Receivable and credited Cash. The reversal entry debits Accounts Receivable (to reflect the fact that cash was never received) and credits Notes Receivable (to remove the note from the balance sheet).

If the Maker of a Note Defaults,an Entry Is Made