Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

To record a sale on account, the company should debit:

Inventory

Accounts Receivable

Sales Revenue

Cash

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Verified step by step guidance

Understand the nature of the transaction: A sale on account means the company has sold goods or services but has not yet received cash. Instead, the customer owes the company money, which is recorded as Accounts Receivable.

Identify the accounts involved: For a sale on account, the two primary accounts affected are Accounts Receivable (an asset account) and Sales Revenue (a revenue account). Inventory is not debited in this case, as it is reduced when goods are sold, and Cash is not involved because payment has not yet been received.

Determine the correct journal entry: To record the sale, you need to debit Accounts Receivable to increase the asset account, as the company is owed money. Simultaneously, credit Sales Revenue to reflect the income earned from the sale.

Consider the impact on Inventory: Although Inventory is not debited in this transaction, it is important to note that a separate entry is typically made to reduce Inventory and record the Cost of Goods Sold (COGS). This entry is not part of the current problem but is relevant for understanding the full accounting process.

Review the accounting equation: Ensure that the transaction maintains the balance of the accounting equation (Assets = Liabilities + Equity). Debiting Accounts Receivable increases assets, and crediting Sales Revenue increases equity through retained earnings.