Question

Which of the following journal entries is prepared by an auto repair shop when a customer will pay cash subsequent to delivery of goods or services?

1) Debit Accounts Receivable, Credit Cash
2) Debit Cash, Credit Accounts Receivable
3) Debit Cash, Credit Sales
4) Debit Sales, Credit Cash

Answer 1

The correct journal entry for an auto repair shop when a customer agrees to pay cash later is to debit Accounts Receivable and credit Sales. Upon receiving cash, the shop should debit Cash and credit Accounts Receivable.

Step-by-step explanation:

The correct journal entry an auto repair shop should make when a customer will pay cash subsequent to delivery of goods or services is Debit Accounts Receivable, Credit Sales. This is because at the time of service delivery, the customer has not yet paid, so the business expects to receive cash in the future, which represents an increase in Accounts Receivable. When the auto repair shop eventually receives the cash from the customer, the journal entry to record this transaction would be Debit Cash, Credit Accounts Receivable, indicating that cash has been received and the customer's obligation to pay has been fulfilled.

To answer the referenced informational points:

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