When an invoice is paid, which accounts are affected?

When an invoice is paid, which accounts are affected?

• A. Debits accounts receivable and credits cash
• B. Credits accounts receivable and debits cash
• C. Debits cash and credits revenue
• D. Debits revenue and credits cash

Answer: (B)

When a payment is received on an invoice, you’re converting a receivable into cash. This increases cash (an asset) and decreases accounts receivable (another asset). In double-entry terms, you record a debit to cash and a credit to accounts receivable. This pair reflects the cash inflow and the reduction of what customers owe. Other options would misstate the transaction: debiting accounts receivable and crediting cash would reduce cash and grow receivables, which isn’t what happens when payment is received; debiting cash and crediting revenue or debiting revenue and crediting cash would wrongly affect revenue, which isn’t affected by simply collecting a previously recorded receivable.

When a payment is received on an invoice, you’re converting a receivable into cash. This increases cash (an asset) and decreases accounts receivable (another asset). In double-entry terms, you record a debit to cash and a credit to accounts receivable. This pair reflects the cash inflow and the reduction of what customers owe.

Other options would misstate the transaction: debiting accounts receivable and crediting cash would reduce cash and grow receivables, which isn’t what happens when payment is received; debiting cash and crediting revenue or debiting revenue and crediting cash would wrongly affect revenue, which isn’t affected by simply collecting a previously recorded receivable.