Multiple Choice
Which of the following correctly describes the journal entry to record the acquisition of a fixed asset paid by check?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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When a company purchases equipment for cash, which of the following journal entries correctly records the transaction?
A
Debit Equipment; Credit Cash
B
Debit Accounts Payable; Credit Equipment
C
Debit Cash; Credit Equipment
D
Debit Equipment; Credit Accounts Payable
Verified step by step guidance1
Step 1: Understand the nature of the transaction. The company is purchasing equipment, which is an asset, and paying for it in cash, which is another asset. This means one asset (equipment) increases, while another asset (cash) decreases.
Step 2: Recall the rules of debits and credits. Assets increase with debits and decrease with credits. Since equipment is increasing, it will be debited, and since cash is decreasing, it will be credited.
Step 3: Analyze the options provided. The correct journal entry should reflect the increase in equipment (debit) and the decrease in cash (credit).
Step 4: Eliminate incorrect options. For example, 'Debit Accounts Payable; Credit Equipment' is incorrect because Accounts Payable is a liability account, and this transaction does not involve liabilities. Similarly, 'Debit Cash; Credit Equipment' is incorrect because cash is decreasing, not increasing.
Step 5: Select the correct journal entry: 'Debit Equipment; Credit Cash,' as it properly reflects the increase in equipment and the decrease in cash.
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