Question

Problem 5-3a: How to record transactions related to accounts receivable?

1) By debiting the accounts receivable and crediting the sales revenue
2) By debiting the sales revenue and crediting the accounts receivable
3) By debiting the accounts receivable and crediting the cash
4) By debiting the cash and crediting the accounts receivable

Answer 1

Accounts receivable transactions are recorded by debiting the accounts receivable to increase the asset and crediting the sales revenue to recognize the income.

Step-by-step explanation:

When recording transactions related to accounts receivable, the correct way to record a sale on account (a sale for which payment will be received at a later date) is by debiting the accounts receivable and crediting the sales revenue. This is because accounts receivable represent the amount of money that customers owe to the company for goods or services provided on credit. By debiting accounts receivable, the company increases this asset account, reflecting that it expects to receive that amount from customers. By crediting sales revenue, the company recognizes the earned revenue from the sale even though cash has not yet been received.

Here is the correct option broken down:

1. By debiting the accounts receivable and crediting the sales revenue - Correct method to record a sale on account.
2. By debiting the sales revenue and crediting the accounts receivable - Incorrect, this would indicate that the company is reducing its revenue and increasing its liability or reducing an asset, which does not make sense in this context.
3. By debiting the accounts receivable and crediting the cash - Incorrect, this would be used when the cash is actually received, not at the point of sale on account.
4. By debiting the cash and crediting the accounts receivable - Incorrect, this would be used when cash is received from customers paying off their existing accounts receivable.