Question

If a hotel company exchanged an account payable for a note payable, the journal entry for doing so would credit _________.

1) Accounts payable
2) Notes payable
3) Allowance for doubtful accounts
4) Allowance for bad debts

Answer 1

In the exchange of an account payable for a note payable, the journal entry would credit Notes Payable, indicating a new liability with possibly different terms. The entry debits Accounts Payable to remove the old liability. Allowance for Bad Debts is unrelated and not credited.

Step-by-step explanation:

When a hotel company exchanges an account payable for a note payable, the journal entry to record this transaction would involve debiting accounts payable to remove the liability from the books and crediting notes payable to record the new liability. The proper entry would look like this:

• Debit: Accounts Payable
• Credit: Notes Payable

The credit to notes payable increases the liability under a new agreement, presumably with different terms such as interest rates and repayment schedule. An allowance for bad debts is not impacted by this transaction as this account typically relates to accounts receivable, not payables. Therefore, it is not credited in the given scenario.