Multiple Choice
When an individual deposits a check at the local bank, how should the bank record this transaction in its accounting records?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Which of the following items are generally debited to the seller and credited to the buyer in accounting journal entries?
A
Sales revenue
B
Sales returns
C
Freight-out
D
Purchases
Verified step by step guidance1
Understand the concept of debits and credits in accounting: Debits increase asset and expense accounts, while credits increase liability, equity, and revenue accounts. In journal entries, the seller and buyer record transactions differently based on their perspective.
Analyze the nature of each item listed: Sales revenue is credited to the seller as it increases their revenue, while sales returns are debited to the seller as they reduce revenue. Freight-out is an expense for the seller and is debited, while purchases are debited to the buyer as they increase inventory or expense accounts.
Focus on the relationship between the seller and buyer: Sales returns are generally debited to the seller because they represent a reduction in revenue, and credited to the buyer because they reduce the buyer's liability or increase their receivable.
Consider the journal entry for sales returns: For the seller, the entry would typically debit 'Sales Returns and Allowances' and credit 'Accounts Receivable' or 'Cash.' For the buyer, the entry would credit 'Accounts Payable' or debit 'Cash' or 'Inventory,' depending on the payment method and inventory system.
Review the other items for clarity: Freight-out is not credited to the buyer but is an expense for the seller. Purchases are not credited to the buyer but are debited as they increase inventory or expenses. Sales revenue is credited to the seller and not debited to the buyer.
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