Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

Which of the following journal entries correctly records the payment of workshop costs in cash, assuming the costs were previously unrecorded?

Debit Workshop Costs; Credit Accounts Receivable

Debit Workshop Costs; Credit Cash

Debit Accounts Payable; Credit Workshop Costs

Debit Cash; Credit Workshop Costs

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Verified step by step guidance

Step 1: Understand the nature of the transaction. The payment of workshop costs in cash indicates that the company is incurring an expense and paying for it immediately using cash. Since the costs were previously unrecorded, this is the first time the expense is being recognized in the accounting records.

Step 2: Identify the accounts involved. Workshop Costs is an expense account that needs to be debited to reflect the increase in expenses. Cash is an asset account that needs to be credited to show the decrease in cash due to payment.

Step 3: Recall the accounting equation and double-entry bookkeeping principles. Every transaction must have equal debits and credits to maintain the balance of the accounting equation: \( \text{Assets} = \text{Liabilities} + \text{Equity} \). In this case, the decrease in cash (credit) is balanced by the increase in expenses (debit).

Step 4: Analyze the incorrect options. 'Debit Workshop Costs; Credit Accounts Receivable' is incorrect because Accounts Receivable represents money owed to the company, not cash payment. 'Debit Accounts Payable; Credit Workshop Costs' is incorrect because Accounts Payable represents liabilities, which are not involved here. 'Debit Cash; Credit Workshop Costs' is incorrect because it reverses the correct entry.

Step 5: Formulate the correct journal entry. The correct entry is 'Debit Workshop Costs; Credit Cash,' as it properly reflects the increase in expenses and the decrease in cash due to payment.