Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

When recording a sale that includes both billable amounts and add-on amounts for each product or service, which journal entry correctly reflects the use of debits and credits to show the total sum for each item?

Debit Sales Revenue for the billable amount and credit Accounts Payable for the add-on amount.

Credit Accounts Receivable for the billable amount and debit Sales Revenue for the add-on amount.

Debit Accounts Receivable for the total (billable + add-on amounts) and credit Sales Revenue for the same total.

Credit Cash for the total (billable + add-on amounts) and debit Inventory for the same total.

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Verified step by step guidance

Step 1: Understand the nature of the transaction. A sale that includes both billable amounts and add-on amounts represents revenue earned by the business. The journal entry must reflect the total revenue generated and the corresponding account affected.

Step 2: Identify the accounts involved. In this case, the accounts are 'Accounts Receivable' (an asset account) and 'Sales Revenue' (a revenue account). Accounts Receivable is debited because it represents the amount owed to the business by customers, and Sales Revenue is credited to record the income earned.

Step 3: Calculate the total amount to be recorded. Add the billable amount and the add-on amount together to determine the total revenue generated from the sale. This total will be used in the journal entry.

Step 4: Record the journal entry. Debit 'Accounts Receivable' for the total amount (billable + add-on amounts) to reflect the increase in assets, and credit 'Sales Revenue' for the same total to record the revenue earned.

Step 5: Verify the journal entry. Ensure that the debit and credit amounts are equal, as this maintains the balance in the accounting equation (Assets = Liabilities + Equity). Double-check the accounts used to confirm they accurately reflect the transaction.