Multiple Choice
When a non-sufficient funds (NSF) check is discovered and requires an adjustment to the cash balance, which journal entry should be recorded?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Kwon Manufacturing began operations this month. It purchased equipment for \$10,000 cash, issued \$20,000 of common stock for cash, and paid \$2,000 for rent. Which of the following is the correct journal entry for the purchase of equipment?
A
Debit Rent Expense \$10,000; Credit Cash \$10,000
B
Debit Cash \$10,000; Credit Equipment \$10,000
C
Debit Equipment \$10,000; Credit Common Stock \$10,000
D
Debit Equipment \$10,000; Credit Cash \$10,000
Verified step by step guidance1
Step 1: Understand the transaction. Kwon Manufacturing purchased equipment for \$10,000 cash. This means the company is acquiring an asset (equipment) and reducing another asset (cash).
Step 2: Recall the accounting equation: Assets = Liabilities + Equity. Purchasing equipment affects the 'Assets' section by increasing equipment and decreasing cash, with no impact on liabilities or equity.
Step 3: Determine the correct accounts to use. The equipment account is debited because it represents an increase in assets, and the cash account is credited because it represents a decrease in assets.
Step 4: Write the journal entry. The format for journal entries is: Debit the account being increased (Equipment) and Credit the account being decreased (Cash).
Step 5: Verify the journal entry. The correct journal entry is: Debit Equipment \$10,000; Credit Cash \$10,000. This reflects the increase in equipment and the decrease in cash accurately.
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