On July 31, ALOE Inc. received $5,000 cash from a customer who previously purchased ALOE's products on account. What should ALOE Inc. record at the time it receives cash?

Question

Quizplus · Accepted Answer

When a customer previously purchased products on account and then pays in cash, the account "Accounts Receivable" needs to be decreased as the payment has been received. This is done through a credit to "Accounts Receivable." At the same time, the payment received needs to be recorded as an increase in "Cash," which is done through a debit to "Cash." Thus, the correct entry is Debit Cash, $5,000; Credit Accounts Receivable, $5,000. This option is provided in choice B.