What happens if a credit amount is entered in the A/R Adjustment Entry form?

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Question restatement: What happens if a credit amount is entered in the A/R Adjustment Entry form?

Option 1: The selected account will be credited and the Accounts Receivable account will be debited, causing an increase in the amount the customer owes. This is incorrect because entering a credit amount to an adjustment typically reduces the AR balance, not increases it, and the debit/credit directions here would not align with normal AR reduction.

Option 2: The selected account will be debited and the Accounts Receivable account will be credited, causing a decrease in the amount the customer owes. This aligns with standard accounting for AR adjustments: debiting the adjustment (which reduces the related liability/receivable offset) and crediting AR to reduce the amount the customer owes. The net effect is a lower AR balance.

Option 3: The selected account will be credited and the Accounts Receivable account will be debited, causing a decrease in the amount the customer owes. Although the resulting decrease is correct, the direction of the entries is inverted for AR adjustments: AR should be credited, not debited, to reduce the receivable, so this description would not reflect the actual transaction.

Option 4: The selected account will be debited and the Accounts Receivable account will be credited, causing an increase in the amount the customer owes. This would increase AR, which is contrary to the purpose of applying a credit in an adjustment entry that is intended to reduce what the customer owes.

Summary: Among the choices, only Option 2 correctly describes the posting direction for an A/R Adjustment Entry when a credit amount is entered, resulting in a reduction of the customer’s outstanding balance. The other options either reverse the debit/credit sides or describe outcomes that increase AR, which do not match standard adjustment behavior.

SG30018E3 - Sage 300 2018 Accounts Receivable Module 3 Quiz

What happens if a credit amount is entered in the A/R Adjustment Entry form?

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