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

In Chapter 4 of the City of Smithville accounting cycle, the city purchases equipment for $50,000, paying $10,000 in cash and signing a note payable for the balance. Which of the following is the correct journal entry to record this transaction?

Debit Equipment $50,000; Credit Notes Payable $50,000

Debit Cash $10,000; Debit Notes Payable $40,000; Credit Equipment $50,000

Debit Equipment $40,000; Credit Cash $10,000; Credit Notes Payable $30,000

Debit Equipment $50,000; Credit Cash $10,000; Credit Notes Payable $40,000

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Verified step by step guidance

Step 1: Understand the transaction. The city is purchasing equipment worth $50,000. Part of the payment is made in cash ($10,000), and the remaining balance ($40,000) is financed through a note payable.

Step 2: Identify the accounts involved. The accounts affected are Equipment (an asset account), Cash (an asset account), and Notes Payable (a liability account).

Step 3: Determine the nature of each account's change. Equipment increases because the city acquires it, Cash decreases because part of the payment is made in cash, and Notes Payable increases because the city owes the remaining balance.

Step 4: Apply the rules of debits and credits. Assets increase with debits and decrease with credits, while liabilities increase with credits. Therefore, Equipment is debited for $50,000, Cash is credited for $10,000, and Notes Payable is credited for $40,000.

Step 5: Write the journal entry. The correct journal entry is: Debit Equipment $50,000; Credit Cash $10,000; Credit Notes Payable $40,000.