Which of the following items are credited to the seller and debited to the buyer in a typical sales transaction?

• A. Inventory
• B. Accounts Receivable
• C. Sales Revenue
• D. Cash Discounts

Answer: (C)

Verified step by step guidance

1. Understand the nature of a typical sales transaction: In a sales transaction, the seller provides goods or services to the buyer, and the buyer compensates the seller either immediately (cash) or through credit terms (accounts receivable). The accounting entries reflect these exchanges.
2. Identify the accounts involved for the seller: The seller typically credits 'Sales Revenue' to recognize the income earned from the sale. If the buyer pays immediately, 'Cash' is debited. If the buyer purchases on credit, 'Accounts Receivable' is debited.
3. Identify the accounts involved for the buyer: The buyer debits 'Inventory' to recognize the goods received and credits 'Accounts Payable' if the purchase is made on credit. If the buyer pays immediately, 'Cash' is credited.
4. Understand the role of cash discounts: Cash discounts are incentives offered by the seller to encourage early payment. If the buyer takes advantage of the discount, the seller debits 'Sales Discounts' (a contra-revenue account), and the buyer reduces the amount credited to 'Accounts Payable' or 'Cash'.
5. Summarize the transaction flow: In a typical sales transaction, 'Sales Revenue' is credited by the seller to record income, and 'Inventory' is debited by the buyer to record the goods received. Cash discounts, if applicable, adjust the payment terms and are reflected in the respective accounts.