Question

Merit Consulting Company regularly performs services for its clients on credit but does not offer discount terms. Because the company was concerned about the credit-worthiness of a new client, that client paid $2,500 in cash at the time that the consulting services were performed. This transaction is recorded into Merit's cash receipts journal by entering __________

A. 2,500 in the Cash Dr. column
B. 2,500 in the Accounts Receivable Cr. column and 2,500 in the Other Accounts Cr. column
C. 2,500 in the Cash Dr. column and 2,500 in the Accounts Receivable Cr. column
D. 2,500 in the Cash Dr. column and 2,500 in the Other Accounts Cr. column

Answer 1

Merit Consulting Company should record the $2,500 cash payment in the Cash Dr. column, with no entry in the Accounts Receivable Cr. column since the service was paid for instantly with cash, and there is no other account involved in the transaction.

Step-by-step explanation:

The correct transaction record for Merit Consulting Company when they receive a cash payment for services performed is to increase the cash account and recognize the revenue. Since services are provided, and cash is paid upfront, there is no increase in accounts receivable, as the cash receipt serves to settle potential receivables immediately.

The correct entry is: Option A: 2,500 in the Cash Dr. column. This is because the cash payment is received and thus the cash balance increases. There is no corresponding credit to Accounts Receivable because no credit was extended; the service was paid for with cash. Also, there is no need to credit Other Accounts, as there isn't another account involved in this transaction.

Answer 2

Merit Consulting Company

When a client paid $2,500 in cash at the time that the consulting services were performed, the transaction is recorded into Merit's Cash Receipts Journal by entering.

A. 2,500 in the Cash Dr. column.

Step-by-step explanation:

There is usually a single column for subsidiary or special journals like the Cash Receipts Journal. The journal simply accumulates the total per the period before posting this total to the controlling account.

A special journal records transactions of a particular type. Examples are Purchases, Sales, Returns Outwards and Inwards, Cash Receipts, and Cash Payment Journals.