Question

Which accounts are affected, and in which direction, by the following business transaction.

You receive $1,500 cash from a customer. You previously sold goods on credit.
Options:
1) Accounts receivable increases
2) Sales revenue increases
3) Sales revenue decreases
4) Cash increases
5) Sales returns and allowance decreases
6) Cash decreases
7) Accounts receivable decreases
8) Sales returns and allowance increases

Answer 1

When $1,500 cash is received from a customer for goods sold on credit, Cash (asset) increases and Accounts Receivable (asset) decreases. Sales Revenue is not affected because it was recognized at the point of sale.

Step-by-step explanation:

When you receive $1,500 cash from a customer for goods you previously sold on credit, two accounts are affected in the following way:

• Cash increases (4)
• Accounts receivable decreases (7)

This transaction is a common bookkeeping entry where an asset, Cash, is increased because you have received physical money. Simultaneously, another asset, Accounts Receivable, which represents money owed by customers, is decreased because the customer has fulfilled their payment obligation. It should be noted that Sales Revenue is not affected because it was recognized at the time of the sale, not the collection of cash.