Chapter 5, Problem 1RQ

When recording a credit sale, what account do we debit? Describe where this account is reported in the financial statements.    LO5–1

To determine

Credit sales:

Credit sales refer to the transfer of ownership of the products to the customers by bearing the risk of collecting payment from the customers in future date or at a specified date. Credit sales transactions are otherwise represented as sales on account.

To determine: The account that would be debited when recording a credit sale.

Answer to Problem 1RQ

Accounts receivable would be debited when recording a credit sale.

Explanation of Solution

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Credit sales increases the accounts receivable, hence an increase in accounts receivable (asset account) should be debited.

Conclusion

Hence, accounts receivable would be debited when recording a credit sale.

To determine

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

To identify: The location in which accounts receivable is reported in the financial statements.

Answer to Problem 1RQ

Accounts receivable is reported under the current asset section of the balance sheet.

Explanation of Solution

Accounts receivable is an asset account. All assets account should be reported in the balance sheet. Since accounts receivable is normally expected to be collected within a period of one year, it should be reported under the current asset section of the balance sheet.

Conclusion

Thus, accounts receivable is reported under the current asset section of the balance sheet.