A customer purchased $1,500 of services on credit two months ago and has just paid the bill. The receipt of the payment from the customer is recorded as a
A) debit to Cash and a credit to Accounts Receivable.
B) debit to Cash and a credit to Accounts Payable.
C) debit to Expenses and a credit to Revenue.
D) debit to Accounts Receivable and a credit to Retained Earnings.

Question

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When a customer pays a bill for services purchased on credit, it is recorded as a debit to Cash (an increase in assets) and a credit to Accounts Receivable (a decrease in assets). This reflects the fact that the company is now receiving cash in exchange for reducing the amount that the customer owes in accounts receivable. Option B is incorrect because accounts payable is a liability account, not an asset account, so it would not be affected by a customer payment. Option C is incorrect because expenses and revenue accounts are not usually involved in the process of recording customer payments. Option D is incorrect because a credit to retained earnings would not reflect the specific transaction of a customer payment.

A Customer Purchased $1,500 of Services on Credit Two Months