Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

When a customer (1) accepts a note and (2) subsequently dishonors the note, what entries are made in the customer's account?

(1) Credit Notes Payable; (2) Credit Accounts Payable

(1) Debit Cash; (2) Credit Notes Receivable

(1) Credit Accounts Receivable; (2) Debit Notes Receivable

(1) Debit Notes Receivable; (2) Debit Accounts Receivable

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Verified step by step guidance

Step 1: Understand the scenario. When a customer accepts a note, it means the customer has agreed to pay the amount owed through a formal promissory note. This requires recording the note as a receivable in the company's books.

Step 2: Record the acceptance of the note. The company debits 'Notes Receivable' to recognize the formal agreement to receive payment in the future. This increases the asset account 'Notes Receivable'. Simultaneously, the company credits 'Accounts Receivable' to remove the original receivable from the books, as it is now replaced by the note.

Step 3: Address the dishonor of the note. If the customer fails to pay the note at maturity, the company must reverse the note receivable and reinstate the original accounts receivable. This is done by debiting 'Accounts Receivable' to recognize the amount still owed by the customer.

Step 4: Reverse the note receivable. The company credits 'Notes Receivable' to remove the dishonored note from the books, as it is no longer valid.

Step 5: Summarize the entries. The journal entries are: (1) Debit 'Notes Receivable' and Credit 'Accounts Receivable' when the note is accepted, and (2) Debit 'Accounts Receivable' and Credit 'Notes Receivable' when the note is dishonored.