Final answer:
Philip was invoiced for $6,000 and paid one-quarter in cash, which is $1,500. The remaining balance of $4,500 was settled by cheque.
Step-by-step explanation:
Philip's invoicing scenario involves a $6,000 invoice from the previous month, with a partial cash payment and the remaining balance settled by cheque. This transaction has dual implications for the company's cash flow and accounting records.
When one-quarter of the invoice amount, which amounts to $1,500, is received in cash, it signifies an immediate positive impact on liquidity. The company records a debit to Cash, recognizing the cash inflow, and a credit to Accounts Receivable, reflecting the reduction in the amount owed by Philip. This partial cash payment ensures that a portion of the outstanding receivable is realized promptly.
The balance of $4,500 settled by cheque introduces a timing element to the cash realization process. The cheque is initially recorded as an increase in Cash when deposited, with a corresponding credit to Accounts Receivable, signifying the full settlement of the invoice. However, until the cheque is processed and the funds are cleared by the bank, the cash remains pending realization.
This scenario highlights the importance of efficient cash management, timely processing of cheques, and accurate accounting entries to reflect the dynamic nature of cash inflows from different payment methods, ensuring a precise representation of the company's financial status.