Which accounts are increased by a sale on account?

Which accounts are increased by a sale on account?

• A. Cash and Revenue
• B. Accounts Payable and Revenue
• C. Accounts Receivable and Revenue
• D. Inventory and Revenue

Answer: (C)

A sale on account is a credit sale, so you recognize the revenue as earned and create an asset representing the amount customers owe you. That means Revenue increases and Accounts Receivable increases. Cash won’t rise at the moment of the sale on account, because payment hasn’t been received yet. If you were to look at inventory, it would typically decrease (cost of goods sold is recorded) rather than increase, which is why only Revenue and Accounts Receivable are the accounts that rise in a sale on account. For example, selling $500 on credit would debit Accounts Receivable and credit Revenue. When the customer pays, Cash increases and Accounts Receivable decreases.

A sale on account is a credit sale, so you recognize the revenue as earned and create an asset representing the amount customers owe you. That means Revenue increases and Accounts Receivable increases. Cash won’t rise at the moment of the sale on account, because payment hasn’t been received yet. If you were to look at inventory, it would typically decrease (cost of goods sold is recorded) rather than increase, which is why only Revenue and Accounts Receivable are the accounts that rise in a sale on account. For example, selling $500 on credit would debit Accounts Receivable and credit Revenue. When the customer pays, Cash increases and Accounts Receivable decreases.