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 company purchases equipment for $5,000 cash, which of the following journal entries correctly records the transaction?

Debit Cash $5,000; Credit Equipment $5,000

Debit Equipment $5,000; Credit Cash $5,000

Debit Equipment $5,000; Credit Accounts Payable $5,000

Debit Accounts Payable $5,000; Credit Equipment $5,000

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Verified step by step guidance

Step 1: Understand the nature of the transaction. The company is purchasing equipment, which is an asset, and paying for it in cash. This means the equipment account will increase, and the cash account will decrease.

Step 2: Recall the accounting equation: Assets = Liabilities + Equity. Since equipment is an asset, its increase will be recorded as a debit. Cash, also an asset, decreases, and decreases in assets are recorded as credits.

Step 3: Apply the rules of debits and credits. Debits increase asset accounts, while credits decrease asset accounts. Therefore, the equipment account will be debited, and the cash account will be credited.

Step 4: Write the journal entry. The correct journal entry for this transaction is: Debit Equipment $5,000; Credit Cash $5,000. This reflects the increase in equipment and the decrease in cash.

Step 5: Verify the journal entry. Ensure that the total debits equal the total credits ($5,000 each), maintaining the balance in the accounting equation.