Question

Bingo Corp. signed a promissory note of $1,000 for one of its vendors in exchange for supplies. $100 cash payment is due upon signing the note and the term is that the balance and interest are due in 90 days at 12% (assume 360 days). Which of the following would be a journal entry to record the note for Bingo Corp.?
A. Debit accounts payable $1,000; credit cash $100 and credit notes payable $900
B. Debit accounts receivable $1,000; credit cash $100 and credit notes receivable $900
C. Debit supplies $1,000; credit cash $100 and credit notes payable $900
D. None of these

Answer 1

Answer:

The answer is: C) Debit supplies $1,000; credit cash $100 and credit notes payable $900

Explanation:

When assets increase, they are debited - so Supplies account should be debited.

• Dr Supplies 1,000

When assets decrease, they are credited - so Cash account should be credited.

• Cr Cash 100  

When liabilities increase, they are credited - so Notes Payable should be credited.

• Cr Notes Payable 900