Company A provided $300 service to a customer today. The customer paid $100 cash today and will pay $200 in 10 days. Which entry is correct for the company A?

Question

BlackTom AI · Accepted Answer

To analyze the transaction, first restate what happened: Company A performed a $300 service. The customer paid $100 in cash today and will pay $200 later (a receivable). This means the company increases cash by 100 and increases accounts receivable by 200, while recognizing revenue of 300 today.

Option 1: credit revenue by 100
This is incorrect because revenue for the service is $300, not $100. Revenue should be credited for the full $300 when the service is performed, regardless of the timing of cash receipts.

Option 2: credit cash by 100
This is wrong because cash increases when cash is received, not decreases. You would debit cash for the $100 received, not credit it. Crediting cash would imply a cash outflow or a reduction in cash, which does not match the transaction.

Option 3: debit cash by 100
This is correct for the cash received portion. Debiting cash by 100 increases the asset account Cash to reflect the cash received today. However, this entry alone is incomplete since there is also a $200 accounts receivable and $300 revenue components to record. Still, among the options provided, this is the portion that correctly reflects the cash receipt.

Option 4: credit accounts payable by $200
This is incorrect because there is no obligation to pay someone else created by this service sale. The $200 to be collected later is an accounts receivable, not a payable. Crediting accounts payable would imply the company owes money, which is the opposite of what occurred.

Putting the pieces together, the transaction includes a debit to Cash for 100, a debit to Accounts Receivable for 200, and a credit to Revenue for 300. Among the listed choices, only the action 'debit cash by 100' aligns with part of the correct recording, while the others misstate the effects on revenues, cash, or liabilities.

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Company A provided $300 service to a customer today. The customer paid $100 cash today and will pay $200 in 10 days. Which entry is correct for the company A?

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