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 you receive an invoice from a supplier for inventory purchased on account, what is the correct journal entry to record the impact of this transaction?

Debit Inventory; Credit Accounts Payable

Debit Cash; Credit Inventory

Debit Accounts Payable; Credit Inventory

Debit Inventory; Credit Cash

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Verified step by step guidance

Step 1: Understand the nature of the transaction. The invoice represents inventory purchased on account, meaning the company has acquired inventory but has not yet paid for it. This creates a liability (Accounts Payable).

Step 2: Identify the accounts involved. The inventory account increases because the company has acquired goods, and the accounts payable account increases because the company owes money to the supplier.

Step 3: Determine the correct journal entry. To record the increase in inventory, you debit the Inventory account. To record the increase in liability, you credit the Accounts Payable account.

Step 4: Write the journal entry using proper accounting format: Debit Inventory (asset increase) and Credit Accounts Payable (liability increase).

Step 5: Verify the entry aligns with the accounting equation (Assets = Liabilities + Equity). The increase in inventory (asset) is balanced by the increase in accounts payable (liability), ensuring the equation remains in balance.