BACHELOR OF BUSINESS ADMINISTRATION

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BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
A company using the accrual method of accounting performed services on account in August. The services were for $2, 000 and the company gave the customer credit terms that state the amount is to be paid to the company in September.In September when the company receives the $2, 000 from the customer, which account should the company debit?
A
Cash
B
Accounts Receivable
C
Service Revenue
Explanation: 

Detailed explanation-1: -Debits increase stockholders’ equity accounts, and vice versa for credits.

Detailed explanation-2: -A credit entry increases liability, revenue or equity accounts-or it decreases an asset or expense account. Thus, a credit indicates money leaving an account. You can record all credits on the right side, as a negative number to reflect outgoing money.

Detailed explanation-3: -When the cash is deposited to the bank account, two things also change, on the bank side: the bank records an increase in its cash account (debit) and records an increase in its liability to the customer by recording a credit in the customer’s account (which is not cash).

Detailed explanation-4: -Credits increase liability, equity, and revenue accounts. Credits decrease asset and expense accounts.

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