Multiple Choice
Which of the following best describes the effect on the accounting equation when a company records a journal entry that debits Cash and credits Service Revenue?
110
views
2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
In the context of recording journal entries, which of the following best describes the effect of a debit entry to the Cash account?
A
It decreases the Cash account balance.
B
It transfers cash to retained earnings.
C
It has no effect on the Cash account balance.
D
It increases the Cash account balance.
Verified step by step guidance1
Understand the nature of the Cash account: In accounting, the Cash account is an asset account. Asset accounts typically have a normal debit balance, meaning increases to the account are recorded as debits.
Review the effect of a debit entry: A debit entry to an asset account, such as Cash, increases the account balance. This is because debits represent inflows or additions to assets.
Contrast with other types of accounts: For liability or equity accounts, a debit entry would decrease the balance. However, for asset accounts like Cash, the opposite is true—debits increase the balance.
Eliminate incorrect options: The options suggesting that a debit decreases the Cash account balance, transfers cash to retained earnings, or has no effect are incorrect because they do not align with the fundamental accounting principles for asset accounts.
Conclude the correct effect: A debit entry to the Cash account increases the account balance, as it represents an inflow of cash or an addition to the asset.
Related Videos
Related Practice
