Latimer company borrows $50,000 from the bank and signs a note that is due in three months. how would the company record this payment?

To solve this probem, let us dissect this step by step.

First: Latimer company borrows $50,000 from the bank

In the perspective of Latimer company, the amount of $50,000 can already be considered as cash on hand since they are the one borrowing money and they already have it. So we can see that it actually increases the asset or expense account of Latimer company. However, it may be an asset or a cash on hand yet it is a debt. Therefore this is called as debit cash.

So the record is: Debit Cash for $50,000

Second: Latimer company signs a note that will be paid in three months

We can see that the note is still to be paid, hence it is called “payable”. Since it decreases the asset of the company, it is called a credit. The complete description to record would then be: Credit Notes Payable for $50,000

Combining the first and second parts, the complete company record is:

Debit Cash for $50,000 and Credit Notes Payable for $50,000