Under accrual accounting, how should the two sales transactions be recorded?

Under accrual accounting, how should the two sales transactions be recorded?

• A. Debit Cash $5,500 and Accounts Receivable $4,950. Credit Sales Revenue $5,000 and $4,500, Credit Sales Tax Payable $500 and $450.
• B. Debit Cash $5,000 and $4,950, Credit Sales Revenue $5,000 and $4,950, Credit Sales Tax Payable $500 and $450
• C. Debit Cash $5,500, Debit Accounts Receivable $4,950, Credit Sales Revenue $4,500, Credit Sales Tax Payable $950
• D. Debit Cash $5,500 and $4,950, Credit Sales Revenue $5,000 and $4,500, Credit Sales Tax Payable $500 and $450

Answer: (A)

Under accrual accounting, recognize revenue when it’s earned and record the tax collected as a liability. When one sale is paid in cash and the other is on account, you reflect the payment method for each part: the cash sale increases cash and records the revenue and tax for that sale, while the sale on account increases accounts receivable for the total due and records the revenue and tax for that sale. So you debit Cash for the cash sale total (revenue plus tax): 5,500. You debit Accounts Receivable for the on-account sale total (revenue plus tax): 4,950. You credit Sales Revenue for the revenue portions (5,000 from the cash sale and 4,500 from the on-account sale). You credit Sales Tax Payable for the tax portions (500 and 450). This balances the entries and correctly matches the timing and source of each payment with the revenue and the liability for taxes. The other options misallocate either the receivable, the revenue amounts, or the tax liability, or fail to balance the entries, so they don’t reflect the proper accrual recording.

Under accrual accounting, recognize revenue when it’s earned and record the tax collected as a liability. When one sale is paid in cash and the other is on account, you reflect the payment method for each part: the cash sale increases cash and records the revenue and tax for that sale, while the sale on account increases accounts receivable for the total due and records the revenue and tax for that sale.

So you debit Cash for the cash sale total (revenue plus tax): 5,500. You debit Accounts Receivable for the on-account sale total (revenue plus tax): 4,950. You credit Sales Revenue for the revenue portions (5,000 from the cash sale and 4,500 from the on-account sale). You credit Sales Tax Payable for the tax portions (500 and 450). This balances the entries and correctly matches the timing and source of each payment with the revenue and the liability for taxes.

The other options misallocate either the receivable, the revenue amounts, or the tax liability, or fail to balance the entries, so they don’t reflect the proper accrual recording.