Question

An adjusting entry that increases a revenue and decreases a liability is known as a(n):

Multiple Choice

Accrued expense.

Deferred revenue.

Accrued revenue.

Depreciation.

Deferred expense.

On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. Babson pays the invoice on March 17, and takes the appropriate discount. The journal entry that Klein makes on March 17 is:

• Cash	4,500
  Accounts receivable		4,500

• Cash	7,800
  Accounts receivable		7,800

• Cash	4,410
  Sales discounts	90
  Accounts receivable		4,500

• Cash	7,644
  Accounts receivable		7,644

• Cash	7,644
  Sales discounts	156
  Accounts receivable		7,800

Answer 1

Question 1

Correct answer----------Deferred revenue..

Deferred revenue is entry made in two parts. First when cash is received in advance where we Debit cash and credit Deferred revenue and second when revenue is earned . We make another entry when revenue is earned. It involves Debit deferred revenue and credit Revenue earned.

Question 2

Correct answer----------(d)

Cash	7,644
Sales discounts	156
Accounts receivable		7,800

Working

Date	Account Titles and Explanation	Debit	Credit
Mar-12	Accounts receivable	$    7,800.00
	Sales revenue		$    7,800.00
	(To record sales)
Mar-17	Cash	$    7,644.00*
	Sales discount	$        156.00**
	Accounts receivable		$    7,800.00

*7800 x 98%

**7800 x 2%