Question

The entry to journalize the issuance of a note for the purpose of converting an existing account payable would be a. debit Accounts Payable and credit Cash b. debit Cash and credit Accounts Payable c. debit Accounts Payable and credit Notes Payable d. debit Cash and credit Notes Payable

Answer 1

To journalize the issuance of a note to convert an account payable, you debit Accounts Payable and credit Notes Payable, reflecting a change in the form of the liability.

Step-by-step explanation:

The entry to journalize the issuance of a note to convert an existing account payable would be debit Accounts Payable and credit Notes Payable. This entry reflects the replacement of the liability from an open account payable to a formal promise to pay represented by a note. When a company issues a note payable to settle an account payable, the liability is not eliminated, but it's rather transformed into a new instrument with potentially different payment terms and possibly interest.