If a customer purchases $5,000 of inventory and pays with the company's own retail card, what will the journal entry include?Select answer from the options belowcredit to accounts payable of $5,000debit to accounts receivable of $5,000debit to sales of $5,000debit to cash of $5,000
Question
If a customer purchases 5,000debit to accounts receivable of 5,000debit to cash of $5,000
Solution 1
The correct answer is "debit to accounts receivable of $5,000". Here's why:
When a customer purchases inventory with the company's own retail card, it's essentially a promise from the customer to pay the company in the future. This is considered a receivable for the company because it's money that is expected to be received.
So, the company would debit (increase) its Accounts Receivable to reflect the new money that is owed to it. There would also be a credit to Sales to reflect the increase in sales revenue. However, since the question only asks for the debit part of the entry, the correct answer is "debit to accounts receivable of $5,000".
Solution 2
The correct answer is "debit to accounts receivable of $5,000". Here's why:
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The customer purchases inventory worth 5,000. This is done by debiting the accounts receivable account.
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The customer pays with the company's own retail card. This means the company does not receive cash immediately, but it will receive the payment in the future. Therefore, there is no immediate effect on the company's cash account, so there is no need to debit the cash account.
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The company does not owe any money to its suppliers as a result of this transaction, so there is no need to credit the accounts payable account.
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The company has made a sale, but this does not affect the sales account. The sales account is only affected when the company recognizes revenue, which happens when the company delivers the goods or services, not when it receives payment. Therefore, there is no need to debit the sales account.
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