The Journal Entry To Record A Credit Sale Ignoring Cost Of Goods Sold Is
Why Accounts Receivable Is Debited And Sales Revenue Is Credited?
According to Rules of Debits and Credits, when assets accounts increase, we
debit these accounts and when these accounts decrease, we credit these
accounts. Here accounts receivable is a current asset and it is increasing as the
business is entitled to receive the amount of goods sold to customers on
account who promises to pay to the company within specified time. So, increase
in accounts receivable is debited in this transaction.
On the other hand, sales is a revenue account which is credited when
increases according to the rules of debits and credits. In this business
transaction, sales revenue account is increasing as the company is selling the goods
/ products on credit, so credit sales is created and as it is increasing, we
credit it on sales ledger’s account.
Effect On Accounting Equation
Suppose, the company made sales on account of $50,000, then as accounts
receivable is increasing, so it affects assets side of accounting equation and
it is added to assets by $50,000. On the other hand, the sales revenue account
affects equity account as it is the results of profitable activities of the business
contributed by the owners of the business. So, the right side of the accounting
equation is also increasing by $50,000 and hence the accounting equation
equalizes with the increasing of the same amount ($50,000) on both sides as show below:
Assets = Liabilities + Equity
+Accounts Receivable =
--- + (+Sales)
+
$50,000 = --- +
(+$50,000)
The other options (A, B and C) of this mcq are not correct choices here.
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