Multiple Choice
On July 1, a company receives an invoice for \$800 with terms 1/10, net 30. What is the correct journal entry to record the receipt of the invoice?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Mr. Russo exchanged €200 for U.S. dollars to deposit into his company's bank account. Which of the following is the correct journal entry to record this transaction in the company's accounting records?
A
Debit: Bank Fees €200; Credit: Cash (USD) €200
B
Debit: Cash (USD) €200; Credit: Foreign Currency (EUR) €200
C
Debit: Cash (USD) €200; Credit: Revenue €200
D
Debit: Foreign Currency (EUR) €200; Credit: Cash (USD) €200
Verified step by step guidance1
Step 1: Understand the nature of the transaction. Mr. Russo exchanged €200 for U.S. dollars to deposit into his company's bank account. This involves converting one currency (EUR) into another (USD) and recording the transaction in the company's accounting records.
Step 2: Identify the accounts involved. The transaction affects the 'Cash (USD)' account, which increases because U.S. dollars are being deposited, and the 'Foreign Currency (EUR)' account, which decreases because euros are being exchanged.
Step 3: Determine the correct journal entry format. In accounting, a debit entry is used to record an increase in assets, while a credit entry is used to record a decrease in assets. Since 'Cash (USD)' is increasing, it will be debited, and since 'Foreign Currency (EUR)' is decreasing, it will be credited.
Step 4: Write the journal entry. The correct journal entry is: Debit 'Cash (USD)' €200 and Credit 'Foreign Currency (EUR)' €200. This reflects the increase in U.S. dollars and the decrease in euros.
Step 5: Verify the journal entry against the options provided. The correct answer matches the journal entry format: Debit 'Cash (USD)' €200; Credit 'Foreign Currency (EUR)' €200.
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