Multiple Choice
In each succeeding payment on an installment note, which of the following statements is correct?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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If a company debits Cash and credits Sales Revenue, it is recording the:
A
Purchase of inventory on credit
B
Issuance of common stock
C
Payment of an expense
D
Receipt of cash from a sale
Verified step by step guidance1
Understand the accounting equation: Assets = Liabilities + Equity. Cash is an asset, and Sales Revenue is part of equity (specifically, retained earnings).
Analyze the transaction: A debit to Cash increases the asset account, indicating the company has received cash. A credit to Sales Revenue increases the revenue account, which contributes to equity.
Recognize the nature of the transaction: The company is recording the receipt of cash from a sale, as the increase in Cash corresponds to the revenue generated from the sale.
Eliminate incorrect options: The purchase of inventory on credit would involve accounts payable and inventory, not Cash and Sales Revenue. Issuance of common stock would involve Cash and Common Stock, not Sales Revenue. Payment of an expense would involve a debit to an expense account and a credit to Cash, not Sales Revenue.
Conclude that the correct answer is 'Receipt of cash from a sale,' as this matches the accounts debited and credited in the transaction.
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