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The entry to record the issuance of a note for cash was recorded with a debit to Cash and a credit to Notes Receivable. The effect of recording this entry causes: Select one: A. stockholders' equity to be understated. B. assets to be understated. C. liabilities to be overstated. D. stockholders' equity to be overstated.

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Answer:

B) assets to be understated.

Explanation:

The correct journal entry should have been:

Dr Cash XX

    Cr Notes payable XX

Instead, the following entry was made:

Dr Cash XX

    Cr Notes receivable XX

Since notes receivable is an asset and it is wrongfully decreased, assets will be understated. Since notes payable is a liability and it is not recorded. liabilities will also be understated.

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