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Multiple Choice
Which of the following statements regarding reporting sales-related transactions is true?
A
When sales tax is collected, Sales Revenue is debited and Sales Tax Payable is credited.
B
When a company makes a credit sale, Accounts Receivable is debited and Sales Revenue is credited.
C
When a sales return occurs, Sales Revenue is debited and Accounts Payable is credited.
D
When a company makes a cash sale, Sales Revenue is debited and Cash is credited.
Verified step by step guidance
1
Step 1: Understand the nature of sales-related transactions. Sales transactions typically involve recording revenue and the corresponding payment method (cash or accounts receivable). Additionally, sales tax and sales returns must be accounted for appropriately.
Step 2: Analyze the first statement: 'When sales tax is collected, Sales Revenue is debited and Sales Tax Payable is credited.' This is incorrect because Sales Revenue is credited (not debited) to record the income, and Sales Tax Payable is credited to recognize the liability for the collected tax.
Step 3: Analyze the second statement: 'When a company makes a credit sale, Accounts Receivable is debited and Sales Revenue is credited.' This is correct because Accounts Receivable is debited to record the amount owed by the customer, and Sales Revenue is credited to recognize the income earned.
Step 4: Analyze the third statement: 'When a sales return occurs, Sales Revenue is debited and Accounts Payable is credited.' This is incorrect because Sales Revenue is debited to reduce the revenue, but Accounts Payable is not involved. Instead, Accounts Receivable or Cash is credited depending on the original payment method.
Step 5: Analyze the fourth statement: 'When a company makes a cash sale, Sales Revenue is debited and Cash is credited.' This is incorrect because Sales Revenue is credited (not debited) to record the income, and Cash is debited to reflect the receipt of money.