Martin Company needs additional time to pay its accounts payable to Boster Company. Martin makes a written promise to pay Boster the amount on a certain date. Martin records this transaction as follows:
A) debit Notes Payable; credit Accounts Payable.
B) debit Cash; credit Accounts Payable.
C) debit Accounts Payable; credit Notes Payable.
D) debit Notes Payable; credit Cash.

Question

Quizplus · Accepted Answer

When Martin Company converts its accounts payable to a note payable, it is essentially replacing the obligation to pay the amount due to Boster Company with a formal written promise to pay on a specific date. This transaction is recorded by debiting (decreasing) Accounts Payable, as the liability under accounts payable is being eliminated, and crediting (increasing) Notes Payable, as a new liability under a note payable is being created.

Martin Company Needs Additional Time to Pay Its Accounts Payable