Multiple Choice
When a company borrows \$50,000 through a Home Equity Line of Credit (HELOC), which of the following journal entries correctly records the initial receipt of cash?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Which method of inventory purchase would result in an increase to the 'Inventory' account through a debit entry?
A
Purchasing inventory on account (credit purchase)
B
Selling inventory for cash
C
Recording depreciation expense
D
Paying off a supplier liability
Verified step by step guidance1
Understand the concept of the 'Inventory' account: The 'Inventory' account represents the value of goods a company holds for sale. It is an asset account, and increases to asset accounts are recorded as debit entries in financial accounting.
Analyze the first option, 'Purchasing inventory on account (credit purchase)': When inventory is purchased on account, the company acquires goods and records an increase in the 'Inventory' account (debit) while simultaneously recording a liability in the 'Accounts Payable' account (credit). This is a typical transaction that increases the 'Inventory' account.
Evaluate the second option, 'Selling inventory for cash': Selling inventory decreases the 'Inventory' account because the goods are no longer held by the company. This transaction would involve a credit to the 'Inventory' account, not a debit.
Examine the third option, 'Recording depreciation expense': Depreciation expense is related to fixed assets, not inventory. It reduces the value of fixed assets over time and does not affect the 'Inventory' account.
Consider the fourth option, 'Paying off a supplier liability': Paying off a supplier liability reduces the 'Accounts Payable' account (credit) and cash (debit). It does not directly impact the 'Inventory' account, as the inventory was already recorded when it was purchased.
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