Cash was paid by Ari's Alarm Service to creditors on account. Which of the following entries for Ari's Alarm Service records this transaction?
A) Cash, debit; Retained Earnings, credit
B) Accounts Payable, debit; Cash, credit
C) Accounts Receivable, debit; Cash, credit
D) Accounts Payable, debit; Account Receivable, credit

Question

Quizplus · Accepted Answer

When cash is paid to creditors on account, it means that Ari's Alarm Service is reducing its accounts payable balance (which is a liability). Therefore, the entry should be a debit to Accounts Payable (to reduce the balance owed to creditors) and a credit to Cash (to record the outflow of cash). Option A is incorrect because it suggests that the payment would increase Retained Earnings, which is not correct. Option C is incorrect because it suggests that Ari's Alarm Service received cash from its customers, which is not what the question is stating. Option D is incorrect because it suggests that an account receivable was paid, which is not right.

Cash Was Paid by Ari's Alarm Service to Creditors on Account