Collected $9,200 cash from customers on their accounts for previously billed services.

Question

BlackTom AI · Accepted Answer

The scenario describes collecting cash from customers for services that were previously billed. This means the company is converting its Accounts Receivable into Cash.

Option 1: 'Dr. Accounts Receivable 9,200  Cr. Cash 9,200' This entry would increase Accounts Receivable (a debit) and decrease Cash (a credit), which is the opposite of what actually happens when cash is collected on an existing receivable. Therefore, this option is incorrect.

Option 2: 'Dr. Cash 9,200      Cr. Accounts Receivable 9,200' This entry correctly increases Cash (debit) and decreases Accounts Receivable (credit), reflecting the collection of cash from customers on their outstanding balances. This aligns with the normal journal entry for collecting on an accounts receivable.

Option 3: 'Dr. Cash 9,200      Cr. Service Revenue 9,200' Debiting Cash and crediting Service Revenue would artificially recognize revenue again or misrepresent the transaction. The proper offset for collecting a receivable is a reduction of AR, not a revenue reversal, so this is incorrect.

Option 4: 'None of the above' would be chosen only if none of the listed entries correctly reflect the transaction. Since Option 2 does correctly represent the event, this option is incorrect.

In summary, the correct handling of cash collected on previously billed services is to debit Cash and credit Accounts Receivable, which is precisely what Option 2 states.

Collected $9,200 cash from customers on their accounts for previously billed services.

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