Multiple Choice
In accounting for factory overhead, the Factory Overhead account is ______ for actual overhead costs incurred during the period.
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Mason Company provided the following data for this year: Service Revenue earned was \$50,000, Cash collected from customers was \$45,000, and Accounts Receivable increased by \$5,000. Which of the following is the correct journal entry to record the service revenue earned for the year?
A
Debit Accounts Receivable \$50,000; Credit Service Revenue \$50,000
B
Debit Service Revenue \$50,000; Credit Cash \$45,000; Credit Accounts Receivable \$5,000
C
Debit Cash \$50,000; Credit Service Revenue \$50,000
D
Debit Accounts Receivable \$5,000; Debit Cash \$45,000; Credit Service Revenue \$50,000
Verified step by step guidance1
Step 1: Understand the concept of revenue recognition. Revenue is recognized when it is earned, not necessarily when cash is collected. In this case, Mason Company earned \$50,000 in service revenue during the year, regardless of the cash collected.
Step 2: Analyze the data provided. Service Revenue earned is \$50,000, Cash collected from customers is \$45,000, and Accounts Receivable increased by \$5,000. The increase in Accounts Receivable indicates that some of the revenue earned has not yet been collected in cash.
Step 3: Determine the journal entry components. To record the service revenue earned, you need to credit Service Revenue for \$50,000 (to reflect the revenue earned). Since \$45,000 was collected in cash, you debit Cash for \$45,000. The remaining \$5,000, which is the increase in Accounts Receivable, is debited to Accounts Receivable.
Step 4: Write the journal entry. The correct journal entry is: Debit Accounts Receivable \$5,000, Debit Cash \$45,000, Credit Service Revenue \$50,000. This entry reflects the total revenue earned, the cash collected, and the increase in Accounts Receivable.
Step 5: Verify the journal entry. Ensure that the debits equal the credits (\$5,000 + \$45,000 = \$50,000), and confirm that the entry accurately reflects the revenue earned, cash collected, and the change in Accounts Receivable.
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