Multiple Choice
When a company purchases equipment for cash, which of the following journal entries correctly reflects the increase or decrease in the respective accounts?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
A company had the following cash transactions during the month: (1) Received \$5,000 from customers, (2) Paid \$2,000 for rent, and (3) Received \$1,500 from a bank loan. If the beginning cash balance was \$3,000, what is the ending balance in the cash T-account after posting these transactions?
A
\$7,500
B
\$4,500
C
\$6,000
D
\$5,500
Verified step by step guidance1
Step 1: Understand the structure of a T-account. A T-account is a visual representation of an account, with debits on the left side and credits on the right side. For cash transactions, increases in cash are recorded as debits, and decreases are recorded as credits.
Step 2: Start with the beginning cash balance. The problem states that the beginning cash balance is \$3,000. This will be the starting point in the cash T-account.
Step 3: Record the cash inflows (debits). Add the amounts received: \$5,000 from customers and \$1,500 from the bank loan. These amounts increase the cash balance and should be recorded as debits in the T-account.
Step 4: Record the cash outflows (credits). Subtract the amount paid for rent, which is \$2,000. This decreases the cash balance and should be recorded as a credit in the T-account.
Step 5: Calculate the ending balance. To find the ending balance, sum the debits (cash inflows) and subtract the credits (cash outflows) from the beginning balance. The formula is: \( \text{Ending Balance} = \text{Beginning Balance} + \text{Debits} - \text{Credits} \).
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