Bushra Co.'s entry to record this transaction, replacing a $1,000 account payable balance to Elin Co. with a 120-day, $1,000 note bearing 8% annual interest, would include a credit to 8%, 120-day Note Payable in the sum of $1,000.
To open a liability account, such as the 8%, 120-day Note Payable, is to debit the account that receives the value and credit the liability account.
In this instance, the earlier Accounts Payable account will be debited with $1,000, while the new Note Payable account will be credited with $1,000.
Thus, Bushra's entry to record the transaction would include a credit to 8%, 120-day Note Payable.
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