Question

DonCo, Inc. sold merchandise on January 14, and accepted a 90-day, 5% promissory note in the amount of $5,000. On January 14, the entry to record this transaction would include a debit to ________.

Answer 1

Answer:

debit to Notes receivable account in the amount of $5000

Explanation:

THE debit of $5000 goes to the Notes receivable account because the interest rate is note considered but the interest rate is been considered later when the payment of the promissory note is due.

The Notes Receivable account is used to record transaction made which are neither cash nor Credit but are done with promissory notes. promissory notes transaction cannot be recorded under accounts receivables  debited or under cash receivable accounts debited

Answer 2

Answer:

The required entries on 14 January is as follows:

Dr Notes receivable    $5,000

Cr Sales                                     $5,000

Explanation:

No doubt by selling the merchandise a sale transaction has been discharged since the ownership of the goods has changed hands between the seller and the buyer,hence the seller can record a sale by crediting sales account.

However, since the cash has not been received nor is the transaction a mere credit sale where accounts receivable would been debited,neither the cash nor accounts receivable can be debited.

The debit goes to the notes receivable account, without considering the interest as the interest is considered later on when payment becomes due.