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 materials for use in production, which account is debited in the journal entry?

Accounts Payable

Cost of Goods Sold

Raw Materials Inventory

Work in Process Inventory

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Verified step by step guidance

Understand the nature of the transaction: When a company purchases materials for use in production, it is acquiring raw materials that will later be used in the manufacturing process. This transaction involves increasing the Raw Materials Inventory account.

Identify the accounts involved: The Raw Materials Inventory account is debited because the company is increasing its inventory of raw materials. The credit side of the journal entry typically involves Accounts Payable if the purchase is made on credit, or Cash if the purchase is made immediately.

Recall the journal entry format: A journal entry always includes a debit and a credit. In this case, the debit is to Raw Materials Inventory, and the credit is to Accounts Payable or Cash, depending on the payment method.

Understand why other accounts are not debited: Cost of Goods Sold is not debited because this account is used when materials are actually consumed in production and sold. Work in Process Inventory is not debited because this account is used when raw materials are transferred into production, not when they are initially purchased.

Write the journal entry: The journal entry for purchasing raw materials on credit would look like this: Debit Raw Materials Inventory and Credit Accounts Payable. If the purchase is made with cash, the credit would be to Cash instead of Accounts Payable.