Customers paid $8,000 on their accounts. Which accounts are affected by this transaction?
A) Revenue and Retained Earnings increase $8,000.
B) Cash and Revenue increase $8,000. Liabilities and Expense increase $8,000.
C) Cash increases $8,000 and Accounts Receivable decreases $8,000. Revenue and Retained Earnings are unchanged.
D) Cash and Retained Earnings increase $8,000.

Question

Quizplus · Accepted Answer

The transaction involves customers paying their accounts, which means that the company receives cash and reduces its accounts receivable balance. Therefore, Cash increases $8,000 and Accounts Receivable decreases $8,000. Since the payment is related to revenue earned in the past, Revenue and Retained Earnings are unchanged. There are no changes to Liabilities or Expenses, so options A and B are incorrect. Option D is incorrect because Retained Earnings should not increase without a specific reason, such as declaring a dividend or earning profits.

Customers Paid $8,000 on Their Accounts