Select all that applyOn November 1, Eli Co. received a $6,000, 60-day, 6% note from a customer as payment on his $6,000 overdue account. Eli's journal entry to record this transaction on November 1, would include a:Multiple select question.debit to Accounts Receivable for $6,060.credit to Accounts Receivable for $6,000.credit to Notes Receivable for $6,060.debit to Notes Receivable for $6,000.
Question
Select all that applyOn November 1, Eli Co. received a 6,000 overdue account. Eli's journal entry to record this transaction on November 1, would include a:Multiple select question.debit to Accounts Receivable for 6,000.credit to Notes Receivable for 6,000.
Solution
The correct answers are:
- Credit to Accounts Receivable for $6,000.
- Debit to Notes Receivable for $6,000.
Here's why:
When Eli Co. receives a note for an overdue account, it means the customer has promised to pay the overdue amount. This changes the nature of the customer's obligation from an "account receivable" (an amount due from a customer) to a "note receivable" (a formal promise to pay a certain amount).
So, Eli Co. would decrease (credit) Accounts Receivable because the customer's account is no longer overdue. They're not expecting payment from the customer's account anymore because they received a note instead.
At the same time, Eli Co. would increase (debit) Notes Receivable because they now have a note promising payment from the customer. This note is an asset, and increasing assets is recorded as a debit.
The amounts for both the debit and credit are 6,000 for 60 days) isn't due yet, so it doesn't affect the journal entry on November 1.
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