Which of the following transactions is recorded with a debit to Notes Receivable and a credit to Cash?

• A. A company loans cash to a customer and receives a promissory note.
• B. A company collects cash from a customer on account.
• C. A company issues common stock for cash.
• D. A company pays off a note payable to the bank.

Answer: (A)

Verified step by step guidance

1. Understand the nature of the transaction: A debit to Notes Receivable indicates that the company is increasing its asset account for notes it expects to collect in the future. A credit to Cash indicates that the company is decreasing its cash asset account.
2. Analyze the first option: 'A company loans cash to a customer and receives a promissory note.' In this case, the company is giving cash (credit to Cash) and receiving a promissory note (debit to Notes Receivable). This matches the transaction described.
3. Analyze the second option: 'A company collects cash from a customer on account.' Here, the company would debit Cash (increase in cash) and credit Accounts Receivable (decrease in the amount owed by the customer). This does not involve Notes Receivable.
4. Analyze the third option: 'A company issues common stock for cash.' In this case, the company would debit Cash (increase in cash) and credit Common Stock (increase in equity). This does not involve Notes Receivable.
5. Analyze the fourth option: 'A company pays off a note payable to the bank.' Here, the company would debit Notes Payable (decrease in liability) and credit Cash (decrease in cash). This does not involve Notes Receivable.