Question

The entry to record the issuance of a note for cash was recorded with a debit to Cash and a credit to Notes Receivable. The effect of recording this entry causes: Select one: A. stockholders' equity to be understated. B. assets to be understated. C. liabilities to be overstated. D. stockholders' equity to be overstated.

Answer 1

B) assets to be understated.

Step-by-step explanation:

The correct journal entry should have been:

Dr Cash XX

Cr Notes payable XX

Instead, the following entry was made:

Dr Cash XX

Cr Notes receivable XX

Since notes receivable is an asset and it is wrongfully decreased, assets will be understated. Since notes payable is a liability and it is not recorded. liabilities will also be understated.