A company went to the bank and borrowed $10,000 on a long-term note.In transaction analysis,how does this transaction affect the accounting equation?

Question

Quizplus · Accepted Answer

When a company borrows money on a long-term note, it increases its cash balance by the amount borrowed and also creates a liability, notes payable, for the borrowed amount. Therefore, the correct answer is to add $10,000 to cash account and add $10,000 to notes payable account. Option A is incorrect because accounts payable is a liability that represents an obligation to pay for goods or services purchased on credit. Option C is incorrect because retained earnings is a component of shareholders' equity and represents the cumulative profits earned by the company that have not been paid out as dividends. Option D is incorrect because it mentions accounts receivable, which represents money owed to the company by customers, and is not relevant to this transaction.

A Company Went to the Bank and Borrowed $10,000 on a Long-Term