Waterloo Limited accepts a note to settle an overdue account from a customer. The journal entryon Waterloo Limited's books will include a:

Question

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The note received by Waterloo Limited is considered a Note Receivable. Therefore, the journal entry should reflect a debit to Note Receivable to account for the increase in assets. Option A (debit to Accounts Receivable) would be incorrect because this account would only be used if the customer had not yet signed a promissory note. Option B (credit to Note Receivable) would be incorrect because it would result in a decrease of assets, which is not appropriate for a Note Receivable. Option D (debit to Note Payable) would be incorrect because this account would only be used if Waterloo Limited had issued a promissory note to the customer, which is not the case in this scenario.

Waterloo Limited Accepts a Note to Settle an Overdue Account