Power Enterprises uses accrual basis accounting.During October,the company recorded sales revenue of $150,000 from sales of goods to customers who promised to pay in November.During November,the company received payment from these customers of $135,000.No other transactions with customers took place during these two months.Which of the following statements is correct?
A)The Sales Revenue account will have a $135,000 balance at October 31.
B)The Accounts Receivable account has a balance of $15,000 at November 30.
C)The Accounts Payable account has a balance of $15,000 at October 31.
D)The Sales Revenue account will have a $135,000 balance at November 30.

Question

Quizplus · Accepted Answer

The requirement under accrual basis accounting is to record revenues when the performance obligation is satisfied.This basically means the company has done what it promised to do.The sales to customers during October will be recorded with debits to Accounts Receivable and credits to Sales Revenue totaling $150,000.The collection of cash during November will be recorded with a debit to Cash and a credit to Accounts Receivable totaling $135,000.The Accounts Receivable account has a balance of $15,000 at the end of November (computed as debits of $150,000 - credits of $135,000).

Power Enterprises Uses Accrual Basis Accounting