When the draft is received for acceptance from the bank, the liability that is debited and funds are transferred from the company's operating cash account to the bank is called:

Question

Options

• Adraft payable
• Bdraft receivable
• Cinternal signature cards
• Dtransferring debts

• A
  74% (26)
• B
  3% (1)
• C
  9% (3)
• D
  14% (5)

Explanation

Draft payable (A) is correct because when a bank accepts a draft, the accepting company records a liability - the obligation to pay - by debiting "draft payable." Simultaneously, funds move from the operating cash account to the bank to cover this accepted obligation, making "draft payable" the precise accounting term for this liability.

Draft receivable (B) is wrong because it represents an asset - money owed to a company - not a liability owed by a company. Internal signature cards (C) are bank authorization documents that identify who can sign on an account; they have nothing to do with liabilities or fund transfers. Transferring debts (D) is a generic phrase, not an accounting term, and doesn't describe the specific liability account used in this transaction.

Memory tip: Think "payable = you pay it" - a draft payable is something the company owes, so when the bank accepts the draft, the company books the liability (draft payable) and moves cash to cover it.

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