Question

Billing a customer for services on account would result in a debit to cash. Select one: O True False

Answer 1

Answer: False

On account is an accounting term that denotes partial payment of an amount owed or the purchase/sale of merchandise or services on credit. On account can also be referred to as on credit. When services are sold to a customer, the seller normally creates an invoice in its accounting software, which automatically creates an entry to credit the sales account and debit the accounts receivable account. When the customer later pays the invoice, the seller would debit the cash account and credit the accounts receivable account. In this question the sales was on credit basis (on account) so there no cash is received at the time sales. When the amount received at that time only cash is debiting.

Journal Entry

Accounts Receivable A/C Dr ....

To Sales A/C .....

(When services are sold on credit basis)

Cash A/C Dr. .....

To Accounts Receivable A/C .....

(When cash received from the debtor).