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A company lends cash directly to an executive in exchange for a short-term note. What is the journal entry on the issue date?
ADebit Note receivable; credit Cash
BDebit Cash; credit Note receivable
CDebit Note receivable; credit Sales
DDebit Cash; credit Interest revenue
Answer & Solution
Correct answer: A. Debit Note receivable; credit Cash
1. Lending cash creates a note, so Note receivable (an asset) increases and is debited.
2. Cash leaves the business, so Cash (an asset) decreases and is credited.
3. Debiting Cash and crediting Note receivable reverses the entry, recording borrowing, not lending.
4. No sale or interest is recorded on the issue date, so the Sales and Interest revenue options are wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.3.1 "Issue Date", p.133_
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