On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of an account payable with Erikson Company. What is the journal entry that should be recorded by Watson Enterprises upon signing the note?

Debit Accounts Payable $24,000; credit Notes Payable $24,000.

Explanation:

Accounts payable represents the amount that a business owes, it represents it's liabilities.

If a notes payable is replacing the balance on account payable for $24,000, the amount is to be paid off at an interest rate of 4% in the next 60 days.

The journal entry to be raised is a debit of $24,000 to Accounts Payable account to reduce the liability balance, and a credit of $24,000 to Notes payable to indicate we have a loan that is payable in 60 days.

Debit Accounts Payable with $24,000

Credit Notes Payable with $24,000

Explanation:

A note payable also referred to as a promissory note is a binding financial instrument used by one party in writing to promise to pay a specified amount of money another party to a transaction at specific or determinable future date under an agreed time.

From the question, the conversion of the account payable to note payable is changing from one type of current liability to another type of current liability in the book of Watson Enterprises. Therefore, the journal entry that should be recorded by Watson Enterprises upon signing the note is as follows:

Debit Accounts Payable with $24,000

Credit Notes Payable with $24,000

Note:

The interest will be recorded immediately after signing the note but on the 60th day when it falls due.