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 cash, which of the following journal entries correctly reflects the increase or decrease in the respective accounts?

Debit Equipment; Debit Cash

Debit Cash; Credit Equipment

Debit Equipment; Credit Cash

Credit Equipment; Debit Cash

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Verified step by step guidance

Understand the nature of the transaction: The company is purchasing equipment for cash. This means the company is acquiring an asset (equipment) and paying for it using another asset (cash).

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

Identify the accounts involved: Equipment is an asset account, and Cash is also an asset account. Purchasing equipment increases the Equipment account, while paying cash decreases the Cash account.

Determine the correct journal entry: To increase an asset account (Equipment), you debit it. To decrease an asset account (Cash), you credit it. Therefore, the correct journal entry is 'Debit Equipment; Credit Cash.'

Verify the logic: Debiting Equipment reflects the increase in the company's assets, while crediting Cash reflects the decrease in cash due to the payment. This ensures the transaction is recorded accurately in the company's books.