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On October 1, a client pays a company the full \$12,000 in advance for services to be provided over the next 12 months. Which of the following is the correct journal entry to record this transaction?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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If Sales Revenue is credited in a journal entry, which of the following accounts would most likely be debited?
A
Inventory
B
Retained Earnings
C
Accounts Payable
D
Cash
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Understand the nature of the transaction: When Sales Revenue is credited, it indicates that the company has earned revenue from selling goods or services. This credit entry increases the revenue account.
Identify the corresponding debit account: In double-entry accounting, every credit entry must have a corresponding debit entry. Since the problem specifies that Cash is the correct answer, it implies that the company received cash for the sale.
Analyze the options provided: Inventory would be debited if goods were removed from stock, but this is not the case here. Retained Earnings is not directly affected by individual transactions, and Accounts Payable is a liability account, which is unrelated to cash received from sales.
Confirm the correct account: Cash is debited because it represents an increase in the company's cash balance due to the sale. The journal entry would be: Debit Cash and Credit Sales Revenue.
Summarize the journal entry: The journal entry for this transaction is structured as follows: Debit Cash (to record the inflow of cash) and Credit Sales Revenue (to record the earned revenue). This ensures the accounting equation remains balanced.
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