Multiple Choice
When recording the estimate of bad debt expense at the end of an accounting period, which of the following journal entries is correct?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Vail Company recorded the following transactions during November:1. Purchased inventory on account for \$5,000.2. Paid \$2,000 cash to a supplier for a previous purchase.3. Sold goods to customers for \$7,000 on account.Which of the following journal entries correctly records the sale of goods to customers on account?
A
Debit Cash \$7,000; Credit Sales Revenue \$7,000
B
Debit Inventory \$7,000; Credit Accounts Payable \$7,000
C
Debit Sales Revenue \$7,000; Credit Accounts Receivable \$7,000
D
Debit Accounts Receivable \$7,000; Credit Sales Revenue \$7,000
Verified step by step guidance1
Step 1: Understand the nature of the transaction. The sale of goods to customers on account means that the company has sold goods but has not yet received cash. Instead, the customers owe the company money, which is recorded as Accounts Receivable.
Step 2: Identify the accounts involved. For this transaction, the two accounts affected are 'Accounts Receivable' (an asset account) and 'Sales Revenue' (a revenue account).
Step 3: Determine the impact on each account. Since the company is earning revenue, 'Sales Revenue' will be credited to increase it. 'Accounts Receivable' will be debited to reflect the amount owed by customers, increasing the asset.
Step 4: Write the journal entry. The correct journal entry for this transaction is: Debit Accounts Receivable \$7,000; Credit Sales Revenue \$7,000.
Step 5: Verify the journal entry. Ensure that the debit and credit amounts are equal, and confirm that the accounts used align with the nature of the transaction (sale on account). This ensures the accounting equation remains balanced.
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