Multiple Choice
For each of the following accounts, indicate whether a debit or a credit increases the account balance:
1. Asset
2. Liability
3. Revenue
4. Expense
Which of the following correctly matches the increase side for each account type?
2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
When a company receives \$10,000 in cash from a customer, which of the following journal entries is correct?
A
Debit Revenue \$10,000; Credit Cash \$10,000
B
Debit Cash \$10,000; Credit Revenue \$10,000
C
Debit Cash \$10,000; Credit Accounts Payable \$10,000
D
Debit Accounts Receivable \$10,000; Credit Cash \$10,000
Verified step by step guidance1
Step 1: Understand the nature of the transaction. The company is receiving \$10,000 in cash from a customer, which indicates an inflow of cash. This is typically recorded as an increase in the Cash account, which is an asset account.
Step 2: Recall the rules of debits and credits. Assets increase with a debit and decrease with a credit. Since cash is an asset and it is increasing, the Cash account should be debited.
Step 3: Determine the corresponding account to credit. The cash received is likely related to revenue earned by the company. Revenue accounts increase with a credit, so the Revenue account should be credited.
Step 4: Write the journal entry. Based on the analysis, the correct journal entry is: Debit Cash \$10,000; Credit Revenue \$10,000. This reflects the increase in cash and the recognition of revenue.
Step 5: Eliminate incorrect options. Review the other options provided in the problem and confirm why they are incorrect. For example, 'Debit Revenue \$10,000; Credit Cash \$10,000' is incorrect because revenue is not debited when cash is received. Similarly, 'Debit Accounts Receivable \$10,000; Credit Cash \$10,000' is incorrect because accounts receivable is not involved in this transaction.
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