Multiple Choice
If Chinwe owes \$2,000 to a supplier and pays off the debt in cash, which of the following journal entries correctly records the transaction?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Which of the following best describes the effect of recording a \$5,000 cash sale on a company's journal entries?
A
Debit Cash \$5,000; Credit Sales Revenue \$5,000
B
Debit Sales Revenue \$5,000; Credit Cash \$5,000
C
Debit Cash \$5,000; Credit Accounts Receivable \$5,000
D
Debit Accounts Receivable \$5,000; Credit Sales Revenue \$5,000
Verified step by step guidance1
Step 1: Understand the nature of the transaction. A cash sale means the company receives cash immediately in exchange for goods or services provided. This impacts both the Cash account and the Sales Revenue account.
Step 2: Recall the rules of debits and credits. An increase in assets (like Cash) is recorded as a debit, while an increase in revenue (like Sales Revenue) is recorded as a credit.
Step 3: Identify the accounts involved. In this case, the accounts are 'Cash' (an asset account) and 'Sales Revenue' (a revenue account).
Step 4: Determine the correct journal entry. Since Cash is increasing, it will be debited for \$5,000. Since Sales Revenue is increasing, it will be credited for \$5,000.
Step 5: Compare the options provided in the problem. The correct journal entry is 'Debit Cash \$5,000; Credit Sales Revenue \$5,000,' as it reflects the increase in both Cash and Sales Revenue due to the cash sale.
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