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

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

Financial Accounting

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

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Multiple Choice

When taking out student loans, which of the following is the correct initial journal entry to record the transaction?

Debit Interest Expense; Credit Cash

Debit Prepaid Expense; Credit Student Loan Payable

Debit Student Loan Payable; Credit Cash

Debit Cash; Credit Notes Payable

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Verified step by step guidance

Step 1: Understand the nature of the transaction. Taking out a student loan involves receiving cash from the lender, which increases the cash account (an asset). At the same time, it creates a liability in the form of a loan payable, which is recorded as Notes Payable.

Step 2: Recall the basic accounting principle of double-entry bookkeeping. Every transaction affects at least two accounts, and the total debits must equal the total credits.

Step 3: Identify the accounts involved. In this case, the accounts are 'Cash' (an asset account) and 'Notes Payable' (a liability account). Cash increases, so it is debited, and Notes Payable increases, so it is credited.

Step 4: Write the journal entry. The format for the journal entry is: Debit Cash (to record the increase in cash) and Credit Notes Payable (to record the increase in liability).

Step 5: Ensure the journal entry reflects the correct amounts. The debit to Cash and the credit to Notes Payable should be equal to the amount of the loan received, maintaining the balance in the accounting equation: Assets = Liabilities + Equity.