Question

Received $10000 cash from a customer invoiced 2 months ago. The journal entry to record the transaction is:

Select one:

a. debit, cash $10000 and credit, accounts receivable $10000.

b. debit, cash $10000 and credit, revenue $10000.

c. debit, accounts receivable $10000 and credit, revenue $10000.

d. debit, revenue $10000 and credit, cash $10000.

Answer 1

The correct answer is - a. debit, cash $10000 and credit, accounts receivable $10000.

Explanation:

The payment is invoiced to customer 2 months ago. It means that the performance of the event, ie, delivery of goods or services might have completed 2 months ago itself. Therefore, the revenue is already earned. When the revenue is earned without receiving payment, the journal entry is,

Debit, Accounts receivable
Credit, Revenue
(Accounts receivable debited because cash is to be received which will increase asset and revenue is credited because revenue earned which will increase revenue as well as retained earnings.)

When payment is received from the customer, the journal entry is,

Debit, Cash
Credit, Accounts receivable

(Cash i debited because, cash is received and it increases cash asset. Accounts receivable is credited because it reduces accounts receivable asset balance, when the cash is received from accounts receivables )

Here, cash is debited with $10000 and Accounts receivable is credited with $10000.

Option b. is wrong because it is entered when cash is received at the time of earning the revenue.

Option c. is wrong because it is entered at the time of earning revenue on credit basis.

Option d., the journal entry is wrong.