Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the customer. What entry is required in the company's accounts?
A) debit Notes Receivable; credit Cash
B) debit Cash; credit Miscellaneous Income
C) debit Cash; credit Notes Receivable and Interest Revenue
D) debit Accounts Receivable; credit Cash

Question

Quizplus · Accepted Answer

Since the bank collected a short-term note on behalf of the customer, it means that the company had issued a Note Receivable to someone else. Therefore, the entry required in the company's accounts should be a debit to Cash (because the bank collected the amount on behalf of the company) and a credit to Notes Receivable (to reduce the outstanding balance) and Interest Revenue (since the company earned interest on the note while it was outstanding). Option A (debiting Notes Receivable) is incorrect because it does not take into account the fact that the company received cash from the bank. Option B (crediting Miscellaneous Income) is incorrect because it does not specify what the income is from. Option D (debiting Accounts Receivable) is incorrect because it does not relate to the situation described in the question.

Accompanying the Bank Statement Was a Credit Memo for a Short-Term