Adnan's Flower Shop provides floral arrangements for holidays and events.
Adflans sold Oxford Cdy Hall a holiday arrangement for 10,000 on account in
November Due to a government shutdown in December, Oxford only paid
$1,500 otthe amount due within the prescribed period. Both parties agreed to
satisfy the remaining balance with aten-month note, at 14% interest, all
payable at the end of the note.
Please record the appropriate joumnal entry establishing the note on Adran's
books.
Debit notes receivable 8500
Credit accounts receivable 8500
To record the appropriate journal entry for establishing the note on Adnan's books, you would debit the Notes Receivable account and credit the Accounts Receivable account. Here's why:
1. Determine the amount of the note: The original amount of the holiday arrangement sold to Oxford was $10,000, but they only paid $1,500. Therefore, the remaining balance on the account is $10,000 - $1,500 = $8,500.
2. Debit the Notes Receivable account: Since Oxford agreed to pay the remaining balance with a ten-month note, Adnan's Flower Shop should record the amount of the note as a debit to the Notes Receivable account. In this case, the note amount is $8,500.
3. Credit the Accounts Receivable account: Adnan's Flower Shop had initially recorded the sale on account as an increase in Accounts Receivable. Since Oxford still owes them $8,500, the Accounts Receivable account needs to be decreased by the same amount to reflect the transfer of the unpaid balance to the new Notes Receivable account.
Therefore, the appropriate journal entry to establish the note on Adnan's books would be:
Debit: Notes Receivable $8,500
Credit: Accounts Receivable $8,500