Question

Valley Spa purchased $8,000 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 12% promissory note for $8,000. If the note is dishonored, but Tubman intends to continue collection efforts, what is the journal entry to record the dishonored note? (Use 360 days a year.)

Answer 1

The journal entry to record the dishonored note is a debit to Accounts Receivable and a credit to Notes Receivable.

Step-by-step explanation:

The journal entry to record the dishonored note would be:

Debit: Accounts Receivable

Credit: Notes Receivable

This journal entry recognizes that the note is not being paid by Valley Spa and is being returned to Tubman Co. as an Accounts Receivable.

The Notes Receivable account is credited to reflect the reduction in the amount owed by Valley Spa.