Barry is both a debtor and a creditor of Allen Ltd. At the end of the period Barry owes Allen Ltd $1400 while Allen Ltd owes him $800. Allen Ltd should record which journal entry to offset the amounts against each other?
A) DR Accounts receivable $700; CR Accounts payable $700
B) DR Accounts receivable $2200; CR Accounts payable $2200
C) DR Accounts payable $800; CR Accounts receivable $800
D) DR Accounts payable $2200; CR Accounts receivable $2200

Question

Quizplus · Accepted Answer

This journal entry will offset the amounts against each other by decreasing the accounts payable balance by $800 and decreasing the accounts receivable balance by $800, resulting in a net balance of $600 owed to Allen Ltd ($1400 - $800 = $600) by Barry. Option A and B are incorrect as they do not offset the amounts against each other and will result in incorrect balances for both accounts. Option D is incorrect as it overstates both the accounts payable and accounts receivable balances.

Barry Is Both a Debtor and a Creditor of Allen