Terry Company purchased supplies for $7,000 on credit on January 1. On January 15, they made a cash payment of $2,000 to the supplier, and signed a one-year note for the remaining amount to settle the account.
Terry Company's entry on January 15 will include:

Question

Quizplus · Accepted Answer

The entry on January 15 will include an increase to Notes Payable for $5,000 because Terry Company is converting the remaining balance of their purchase ($7,000 - $2,000 = $5,000) into a note payable. This means they are acknowledging a formal obligation to pay the remaining $5,000 through a promissory note.

Terry Company Purchased Supplies for $7,000 on Credit on January