When a company borrows \$50,000 through a Home Equity Line of Credit (HELOC), which of the following journal entries correctly records the initial receipt of cash?

• A. Debit Interest Expense \$50,000; Credit Cash \$50,000
• B. Debit Notes Payable \$50,000; Credit Cash \$50,000
• C. Debit Cash \$50,000; Credit Notes Payable \$50,000
• D. Debit Cash \$50,000; Credit Interest Revenue \$50,000

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the nature of the transaction. When a company borrows money through a Home Equity Line of Credit (HELOC), it is receiving cash and incurring a liability (Notes Payable). This is a financing activity, not an expense or revenue transaction.
2. Step 2: Identify the accounts involved. The company receives cash, so the 'Cash' account will be debited (increased). The company also incurs a liability, so the 'Notes Payable' account will be credited (increased).
3. Step 3: Recall the rules of debits and credits. Assets (like Cash) increase with a debit, and liabilities (like Notes Payable) increase with a credit. This aligns with the nature of the transaction.
4. Step 4: Write the journal entry. Debit the 'Cash' account for \$50,000 to reflect the increase in cash. Credit the 'Notes Payable' account for \$50,000 to reflect the increase in liability.
5. Step 5: Verify the journal entry. Ensure that the total debits equal the total credits (\$50,000 each), maintaining the balance in the accounting equation: Assets = Liabilities + Equity.