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

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

Answer 1

Correct answer---- (E). received $42,000 from a customer who had previously bought merchandise on account.

.

Increase in cash means cash is received and simultaneous decrease in Accounts receivables means cash is received from accounts receivables. If loan was taken then loan account would have been credited.

There is no involvement of accounts receivable account if the sale is on cash or when cash is received from investor.

Payment to supplier will reduce cash instead of increase