Cash of P10,000 received at the time the service was rendered, journalized and posted as a debit to Cash 10,000 and a credit to Accounts Receivable 10,000. The correcting entry is:*a. Debit service Revenue 10,000 and credit Accounts Receivable 10,000b. Debit Accounts Receivable 10,000and credit Service Revenue 10,000c. Debit Cash 10,000 and credit Service Revenue 10,000d. Debit Accounts Receivable 10,000 and credit Cash 10,000
Question
Cash of P10,000 received at the time the service was rendered, journalized and posted as a debit to Cash 10,000 and a credit to Accounts Receivable 10,000. The correcting entry is:*a. Debit service Revenue 10,000 and credit Accounts Receivable 10,000b. Debit Accounts Receivable 10,000and credit Service Revenue 10,000c. Debit Cash 10,000 and credit Service Revenue 10,000d. Debit Accounts Receivable 10,000 and credit Cash 10,000
Solution
The correct answer is b. Debit Accounts Receivable 10,000 and credit Service Revenue 10,000.
Here's why:
The original entry was incorrect because it debited Cash and credited Accounts Receivable. This would be correct if the company was expecting to receive cash in the future, but the problem states that the cash was received at the time the service was rendered.
Therefore, the correct entry should have been a debit to Cash and a credit to Service Revenue, reflecting the increase in cash and the revenue earned.
However, since the incorrect entry has already been made, we need to make a correcting entry. The correcting entry should reverse the incorrect part of the original entry and then record the correct entry.
So, we need to:
- Reverse the incorrect credit to Accounts Receivable by debiting Accounts Receivable 10,000.
- Record the correct credit to Service Revenue by crediting Service Revenue 10,000.
So, the correct answer is b. Debit Accounts Receivable 10,000 and credit Service Revenue 10,000.
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