Annie's Fitness sells a set of free weights to a customer for $1,000. The customer pays $600 in cash and puts the rest on her store credit account. Which one of the following statements describes the most appropriate accounting for the transaction?

A.Debit cash $600; debit accounts receivable $400; credit cost of good sold $1000
B.Debit cash $600; debit accounts receivable $400; credit revenues $1,000
C.Debit revenues $1,000; credit cash $600; credit accounts receivable $400
D.Debit cash $600; debit accounts receivable $400; credit inventory $1,000

I'm having a little trouble with this one. I'm thinking it's A as you would be receiving $600 in cash and placing the remaining $400 into accounts receivable.

Any help would be appreciated...

You are incorrect on this one. The correct answer is B. You are recording a sale to a customer for $1,000 which will be a revenue account like Sales Revenues or just Revenues. A customer paid part of the amount in cash, which means you received cash and put the rest on account which means Accounts Payable.

When a company makes a sale of merchandise or inventory there will be 2 different journal entries; one to record the sale and one to record the cost of the merchandise or inventory being sold.

A is incorrect because Cost of Goods Sold is not affect on this part of sale. Cost of Goods Sold would only be affected on the actual cost of the inventory being sold.

C is incorrect because you are increasing Revenues which would be a Credit entry. You are receiving cash so cash should be Debited. You are increasing Account Receivable which should be a Debit entry.

D is incorrect because inventory is not affected on this part of the sale and would be for the actual cost of inventory sold, not for the actual amount of the sale.

Thanks for your help on that one! Makes perfect sense now. I appreciate your explanations.