Question

Your company converted an existing account receivable in the amount of $5,000 to a note receivable to allow an extended payment period. The note is due in one year and includes an annual interest rate of 5%. The customer repays the principal at the maturity date. The entry to record the receipt of the principal includes a debit to: A. Notes Receivable and credit to Accounts Receivable. B. Cash and credit to Interest Receivable. C. Cash and credit to Notes Receivable. D. Notes Receivable and credit to Cash.

Answer 1

Answer: C. Cash and credit to Notes Receivable

Step-by-step explanation:

The customer paid off the note at maturity with cash which means that the cash account should be debited because asset accounts are debited when they increase.

Notes receivables are treated like revenue which means that they are to be credited when they increase. In this case therefore, Notes receivable will be credited to show that they increased when the customer paid.