Question

X Company prepares monthly financial statements. On September 6, its accountant made an entry that resulted in a $42,000 increase in Cash and a $42,000 decrease in Accounts Receivable. Which of the following transactions is consistent with this entry? X Company

borrowed $42,000 from a bank and signed a note.
received $42,000 from a customer who bought merchandise with cash.
paid $42,000 to a supplier from whom the firm had previously bought merchandise on account.
received $42,000 from a customer who had previously bought merchandise on account.
received $42,000 from a new investor.
sold merchandise to customers on account for $42,000.

Answer 1

X Company prepares monthly financial statements. On September 6, its accountant made an entry that resulted in a $42,000 increase in Cash and a $42,000 decrease in Accounts Receivable.

The following transactions is consistent with this entry:

- Received $42,000 from a customer who had previously bought merchandise on account.

Correct option is fourth.

When a customer buys goods on credit, accounts receivable increases. When the customer makes payment in future, cash increases and accounts receivable decreases.