Correcting Misposted Payment Credit

Steps:

• Correct entry for cheque from receivable: Debit Bank (increases cash), Credit Receivables (decreases asset balance).
• Erroneous entry made: Debit Bank (correct), Credit Payables (increases liability balance wrongly).
• Correction reverses error: Debit Payables (decreases liability), Credit Receivables (decreases asset).
• Result: Trade receivables decrease (properly records payment), trade payables decrease (removes incorrect increase).

Why A is correct:

• Correction entry debits payables (reducing liability per double-entry rules) and credits receivables (reducing asset as payment received).

Why the others are wrong:

• B: Payables decrease, not increase, upon reversal.
• C: Receivables decrease from proper crediting, not increase.
• D: Receivables decrease, not increase, as payment is recorded.

Final answer: A