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Kelly Jones and Tami Crawford borrowed $46,500 on a 7-month, 4% note from Gem State Bank to open their business, Wildhorse’s Coffee House. The money was borrowed on June 1, 2022, and the note matures January 1, 2023. (a) Prepare the entry to record the receipt of the funds from the loan. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

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Answer:

Dr. Cash               $46,500

Cr. Note Payable $46,500

Explanation:

The funds received from the bond is a liability for the business. As cash is received against the liability, so to increase the cash balance we debited the cash account because cash is an asset and has debit nature. On the other hand, to record the liability we, have credited the note payable account because liability has credit nature.

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