Multiple Choice
On October 1, a client pays a company the full \$12,000 in advance for services to be provided over the next 12 months. Which of the following is the correct journal entry to record this transaction?
2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
If Sales Revenue is credited in a journal entry, which of the following accounts would most likely be debited?
A
Inventory
B
Retained Earnings
C
Accounts Payable
D
Cash
Verified step by step guidance1
Understand the nature of the transaction: When Sales Revenue is credited, it indicates that the company has earned revenue from selling goods or services. This credit entry increases the revenue account.
Identify the corresponding debit account: In double-entry accounting, every credit entry must have a corresponding debit entry. Since the problem specifies that Cash is the correct answer, it implies that the company received cash for the sale.
Analyze the options provided: Inventory would be debited if goods were removed from stock, but this is not the case here. Retained Earnings is not directly affected by individual transactions, and Accounts Payable is a liability account, which is unrelated to cash received from sales.
Confirm the correct account: Cash is debited because it represents an increase in the company's cash balance due to the sale. The journal entry would be: Debit Cash and Credit Sales Revenue.
Summarize the journal entry: The journal entry for this transaction is structured as follows: Debit Cash (to record the inflow of cash) and Credit Sales Revenue (to record the earned revenue). This ensures the accounting equation remains balanced.
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