Question

On October 3, Karl Schickele, a carpenter, received a cash payment for services provided to a client. Karl paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a __________.A) debit to Accounts Receivable.
B) credit to Retained Earnings.
C) credit to Notes Payable.
D) credit to Accounts Payable.

Answer 1

Answer:

Option C. Credit to Notes Payable

Explanation:

The reason is that when the payment was received for the services delivered the entry would be:

Dr Cash Account XX

Cr Accounts Receivables XX

Because the receivable has been reduced and the cash asset has been increased. (Decrease in one asset and increase in the other)

When the bills are paid the entry would be to record the accounts payables decrease which must be debited and decrease in cash asset is always credited.

Dr Accounts Payables XX

Cr Cash Account             XX

When the equipment is bought at credit the entry would include an increase in Equipment asset which must be debited and increase in notes payable because credit is used here to finance the equipment. This increase in credit must be credited.

Dr Equipment XX

Cr Notes Payables XX

So the only entry which matches the one of the option is credit to notes payables.

Hence option C is correct here.