Charming Pete requires his customers to pay for their orders two weeks before shipping the goods. Pete will record the cash receipts as:

Question

Quizplus · Accepted Answer

Since the customers are paying in advance, it creates a liability for Charming Pete. The payment received will be recorded as a credit to the liability account, since the company still owes the customers the goods. The debit aspect of the transaction will be recorded in the company's bank account. Therefore, the correct entry will be DR Bank, CR liability account.

Charming Pete Requires His Customers to Pay for Their Orders