Brooke Company grants James Decorating additional time to pay its past due account. James makes a written promise to pay Brooke the amount on a certain date. Brooke Company records this transaction as follows:
A) debit Notes Receivable; credit Accounts Receivable.
B) debit Cash; credit Accounts Receivable.
C) debit Accounts Receivable; credit Notes Receivable.
D) debit Accounts Payable; credit Notes Payable.

Question

Quizplus · Accepted Answer

When a company converts an account receivable into a note receivable, it debits Notes Receivable (indicating it now has a formalized promise of payment) and credits Accounts Receivable (indicating the reduction in the open account balance).

Brooke Company Grants James Decorating Additional Time to Pay Its