When recording a sale that includes both billable amounts and add-on amounts for each product or service, which journal entry correctly reflects the use of debits and credits to show the total sum for each item?

• A. Debit Sales Revenue for the billable amount and credit Accounts Payable for the add-on amount.
• B. Credit Accounts Receivable for the billable amount and debit Sales Revenue for the add-on amount.
• C. Debit Accounts Receivable for the total (billable + add-on amounts) and credit Sales Revenue for the same total.
• D. Credit Cash for the total (billable + add-on amounts) and debit Inventory for the same total.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the nature of the transaction. A sale that includes both billable amounts and add-on amounts represents revenue earned by the business. The journal entry must reflect the total revenue generated and the corresponding account affected.
2. Step 2: Identify the accounts involved. In this case, the accounts are 'Accounts Receivable' (an asset account) and 'Sales Revenue' (a revenue account). Accounts Receivable is debited because it represents the amount owed to the business by customers, and Sales Revenue is credited to record the income earned.
3. Step 3: Calculate the total amount to be recorded. Add the billable amount and the add-on amount together to determine the total revenue generated from the sale. This total will be used in the journal entry.
4. Step 4: Record the journal entry. Debit 'Accounts Receivable' for the total amount (billable + add-on amounts) to reflect the increase in assets, and credit 'Sales Revenue' for the same total to record the revenue earned.
5. Step 5: Verify the journal entry. Ensure that the debit and credit amounts are equal, as this maintains the balance in the accounting equation (Assets = Liabilities + Equity). Double-check the accounts used to confirm they accurately reflect the transaction.