To solve this probem, let us dissect this step by step.
First: Latimer company borrows $50,000 from the bank
In the perspective of Latimer company, the amount of
$50,000 can already be considered as cash on hand since they are the one
borrowing money and they already have it. So we can see that it actually
increases the asset or expense account of Latimer company. However, it may be
an asset or a cash on hand yet it is a debt. Therefore this is called as debit
cash.
So the record is: Debit Cash for $50,000
Second: Latimer company signs a note that will be paid in
three months
We can see that the note is still to be paid, hence it is
called “payable”. Since it decreases the asset of the company, it is called a
credit. The complete description to record would then be: Credit Notes Payable
for $50,000
Combining the first and second parts, the complete company
record is:
Debit Cash for $50,000 and Credit Notes Payable for $50,000