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A customer who owes $1,000 on account cannot pay when the invoice falls due, so both parties agree to convert the balance to a 60-day interest-bearing note. What entry records this transfer on the issue date?
ADebit Receivables $1,000; credit Note receivable $1,000
BDebit Note receivable $1,000; credit Receivables $1,000
CDebit Note receivable $1,000; credit Interest revenue $1,000
DDebit Cash $1,000; credit Note receivable $1,000
Answer & Solution
Correct answer: B. Debit Note receivable $1,000; credit Receivables $1,000
1. The note replaces the receivable, so Note receivable (asset) increases and is debited.
2. The open invoice is cleared, so Receivables (asset) decreases and is credited.
3. No interest is recorded on the issue date, so crediting Interest revenue is wrong.
4. No cash changes hands at transfer, so the Cash option is wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.3.1 "Issue Date", p.134_
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