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

When a 55-year-old individual receives a $30,000 cash distribution from an investment, which of the following journal entries correctly records the transaction in the individual's accounting records?

Debit Distribution Expense $30,000; Credit Cash $30,000

Debit Cash $30,000; Credit Investment Income $30,000

Debit Cash $30,000; Credit Accounts Receivable $30,000

Debit Investment Income $30,000; Credit Cash $30,000

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Verified step by step guidance

Understand the nature of the transaction: A cash distribution of $30,000 is received by the individual, which means cash is increasing. This should be recorded as a debit to the Cash account, as debits increase asset accounts.

Determine the source of the cash distribution: The cash is received from an investment, which implies that the income generated from the investment is being recognized. Investment Income is a revenue account, and revenues are credited to reflect an increase.

Analyze the incorrect options: The option 'Debit Distribution Expense $30,000; Credit Cash $30,000' is incorrect because Distribution Expense is not relevant here, as the transaction is about receiving income, not incurring an expense.

Evaluate the other incorrect options: 'Debit Cash $30,000; Credit Accounts Receivable $30,000' is incorrect because Accounts Receivable represents amounts owed to the individual, not income received. Similarly, 'Debit Investment Income $30,000; Credit Cash $30,000' is incorrect because it reverses the correct treatment of the accounts.

Conclude the correct journal entry: The correct entry is 'Debit Cash $30,000; Credit Investment Income $30,000,' as it properly reflects the increase in cash and the recognition of investment income.