A company borrowed $15,000 from the bank by signing a long-term note.How does this transaction affect the accounting equation?
A)Add $15,000 to Cash and add $15,000 to Accounts Payable.
B)Add $15,000 to Cash and add $15,000 to Notes Payable.
C)Add $15,000 to Cash and add $15,000 to Retained Earnings.
D)Add $15,000 to Accounts Receivable and add $15,000 to Accounts Payable.

Question

Quizplus · Accepted Answer

When a company borrows money, it increases its Cash balance (an asset) by the amount borrowed. However, this creates a liability, which is the Notes Payable account. Therefore, we would add $15,000 to Cash (debit) and add $15,000 to Notes Payable (credit) to reflect this transaction. Option A is incorrect because Accounts Payable is used for tracking short-term debts owed to suppliers, not long-term loans. Option C is incorrect because Retained Earnings tracks profits or losses earned by the company, not cash flows. Option D is incorrect because neither Accounts Receivable nor Accounts Payable are relevant to this transaction.

A Company Borrowed $15,000 from the Bank by Signing a Long-Term