Multiple Choice
Given the following data for Hermann Corporation:- Purchased equipment for \$10,000 cash.Which of the following is the correct journal entry to record this transaction?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Which of the following journal entries correctly records the payment of workshop costs in cash, assuming the costs were previously unrecorded?
A
Debit Workshop Costs; Credit Accounts Receivable
B
Debit Workshop Costs; Credit Cash
C
Debit Accounts Payable; Credit Workshop Costs
D
Debit Cash; Credit Workshop Costs
Verified step by step guidance1
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.
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