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

If you owe $14 to a supplier and record this transaction in your accounting journal, which of the following entries is correct?

Debit Purchases (or Inventory) $14; Credit Accounts Payable $14

Debit Accounts Payable $14; Credit Purchases $14

Debit Supplies Expense $14; Credit Accounts Payable $14

Debit Accounts Payable $14; Credit Cash $14

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Verified step by step guidance

Understand the nature of the transaction: You owe $14 to a supplier, which means you have incurred a liability (Accounts Payable) and acquired goods or services (Purchases or Inventory). This transaction needs to be recorded in the accounting journal.

Recall the double-entry accounting principle: Every transaction affects at least two accounts, and the total debits must equal the total credits. In this case, one account will be debited, and another will be credited.

Determine the accounts involved: Since you owe $14 to a supplier, Accounts Payable will be credited to reflect the increase in liability. The corresponding debit will be to Purchases (or Inventory) to record the acquisition of goods or services.

Write the journal entry: Debit Purchases (or Inventory) $14 to increase the asset account for the goods or services acquired. Credit Accounts Payable $14 to increase the liability account for the amount owed to the supplier.

Review the other options provided: Analyze why the other entries are incorrect. For example, 'Debit Accounts Payable; Credit Purchases' reverses the correct entry, 'Debit Supplies Expense; Credit Accounts Payable' assumes an expense rather than inventory, and 'Debit Accounts Payable; Credit Cash' implies payment has been made, which is not the case here.