Multiple Choice
When a business receives cash on account, which two accounts are affected in the journal entry?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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How are revenues typically recorded in the journal using debits and credits?
A
Revenues are not recorded using debits or credits.
B
Revenues are recorded with a credit entry.
C
Revenues are recorded with a debit entry.
D
Revenues are recorded with both a debit and a credit entry to the same account.
Verified step by step guidance1
Understand the concept of revenues: Revenues represent the income earned by a business from its operations, such as sales of goods or services. In accounting, revenues increase the equity of the business.
Recall the rules of debits and credits: In double-entry accounting, credits increase revenue accounts, while debits decrease them. This is because revenue accounts are part of equity, and equity increases with credits.
Identify the journal entry for recording revenues: When a business earns revenue, it typically credits the revenue account to reflect the increase in income. Simultaneously, it debits another account, such as cash or accounts receivable, depending on how the revenue was earned (e.g., cash sales or credit sales).
Analyze the options provided: The correct answer is 'Revenues are recorded with a credit entry,' because revenues increase with credits. The other options are incorrect because they either contradict the rules of debits and credits or suggest an improper accounting treatment.
Apply this knowledge to journal entries: For example, if a company earns \$1,000 in revenue from cash sales, the journal entry would be: Debit Cash \$1,000 (to increase the asset account) and Credit Revenue \$1,000 (to increase the revenue account). This ensures the accounting equation remains balanced.
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