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

A liability created by buying goods or services on credit is typically recorded to which of the following accounts?

Accounts Payable (credit)

Inventory (credit)

Cash (debit)

Accounts Receivable (debit)

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Verified step by step guidance

Understand the nature of the transaction: When goods or services are purchased on credit, the company incurs a liability to pay the supplier in the future. This liability is typically recorded in the Accounts Payable account.

Identify the accounts involved: In this scenario, the purchase of goods or services affects two accounts: (1) Accounts Payable (a liability account) and (2) the account representing the goods or services received, such as Inventory (an asset account).

Determine the accounting entry: For purchases on credit, the liability (Accounts Payable) is credited, as credit entries increase liabilities. The asset account (e.g., Inventory) is debited, as debit entries increase assets.

Exclude irrelevant accounts: Cash is not involved in this transaction because no immediate payment is made. Accounts Receivable is also irrelevant because it pertains to amounts owed to the company, not amounts the company owes.

Summarize the journal entry: The correct journal entry for this transaction is to debit Inventory (or the appropriate asset account) and credit Accounts Payable to reflect the liability created by the credit purchase.