Question

On August 3, Marley's Sporting Goods accepted a six-month promissory note from J.J. Brown, who owed $490 on account. (J. J. had needed more time to pay his balance.) The promissory note had a 10 percent interest rate. The journal entry on August 3 to record the transaction would be:

Answer 1

Dr Notes Receivables account 490

Cr Accounts Receivables account 490

Step-by-step explanation:

Notes receivables is debited since it increases, and when assets increase they are debited.

Accounts receivables is credited sin it decreases, and when assets decrease they are credited.

The journal entry cannot record the $49 in interest revenue since revenue cannot be recognized until it is earned or its earning process is substantially completed. Considering that Brown is not a very good client, the company is not even sure that it will be able to collect the original $490.

If Brown really pays the note, then the journal entries would be:

Dr Cash account 539

Cr Notes Receivables account 490

Cr Interest revenue 49