On May 1,2015,Continental Bank drafted a $5,000 personal loan for a customer.The loan is due in one year with 8% interest.What journal entry should the bank prepare on May 1,2015?

Question

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When the bank drafts a $5,000 personal loan for a customer, it will receive a promissory note, which is a legal document promising to repay the loan amount. In this case, the journal entry should be:

Debit Notes Receivable for $5,000 (as the bank is now owed this amount by the customer)
Credit Cash for $5,000 (as the bank received the loan amount in cash)

Therefore, option C is the correct answer. Option A is incorrect because Notes Payable is an account used by borrowers, not lenders. Option B is incorrect because Accounts Receivable and Service Revenue accounts are used for recording income from services provided, not loans. Option D is incorrect because there is no accounts receivable involved in this transaction, as the bank did not sell anything on credit.

On May 1,2015,Continental Bank Drafted a $5,000 Personal Loan for a Customer.The