Question

Problem 5-2a: How should transactions related to credit sales and contra revenues be recorded in the algo?

1) Debit the Accounts Receivable and Credit the Sales Revenue account
2) Debit the Sales Revenue and Credit the Accounts Receivable account
3) Debit the Sales Revenue and Credit the Contra Revenue account
4) Debit the Contra Revenue and Credit the Sales Revenue account

Answer 1

To record credit sales, debit Accounts Receivable and credit Sales Revenue. This reflects the company expecting money, increasing assets, and recognizing revenue. Contra revenue accounts are used for reducing revenue, not initial sales recording.

Step-by-step explanation:

When recording transactions related to credit sales and contra revenues, the correct method is to debit the Accounts Receivable and credit the Sales Revenue account. This reflects the increase in assets, as the company is expecting to receive money from the customer (Accounts Receivable), and recognizes the revenue from the sale (Sales Revenue). Contra revenue accounts, such as Sales Returns and Allowances or Sales Discounts, would be used to record transactions that reduce gross revenue, not for the initial record of credit sales.