Choose the answer which describes the accounts affected and their movements if a company collects on its accounts receivable.

a. Cash increases ; Accounts payable decreases

b. Inventory increases ; Cash decreases

c. Cash increases ; Accounts receivable decreases

d. Cash decreases ; Accounts receivable decreases

e. Inventory increases ; Accounts receivable increasesc

If a company collects on its accounts receivable c. Cash increases; Accounts receivable decreases.

Accounts receivable represent the sales a company made to customers on account, meaning the customer has to pay them at a later date. Accounts receivable is an asset and therefore is increased by debits and decreased by credits. Revenue accounts are increased by credits and decreased by debits. When a company makes a sale on account, the entry will look like the following:

This entry increases both the accounts receivable for the money owed to the company by the customer and revenue for the sale the company made.

Cash is also an asset account so it too is increased by debits and decreased by credits. When a company collects on its accounts receivable, the entry will look like the following:

This entry increases cash and decreases accounts receivable for the amount the company collects from its customer. It takes the money out of accounts receivable because it is no longer owed and puts it into the cash account.

a, b, and e.

a. b. and e. are incorrect. They don't even include the correct two accounts. Accounts payable and inventory have nothing to do with this transaction.

d.

d. is also incorrect. Although it includes the correct two accounts, it decreases both accounts. We know this is wrong because the company collected money, therefore increasing cash. This entry also doesn't balance because it decreases both cash and accounts receivable which would be two credits. It has no offsetting debit.