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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

In the context of journal entries, when a principal compensates an agent for services performed on the principal's behalf, which of the following is the correct journal entry for the principal?

Debit: Cash; Credit: Expense

Debit: Expense; Credit: Cash

Debit: Revenue; Credit: Cash

Debit: Cash; Credit: Revenue

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Verified step by step guidance

Understand the context: The principal is compensating the agent for services performed. This means the principal is incurring an expense and paying cash for it.

Recall the basic accounting principle: Expenses are debited because they reduce equity, and cash is credited because it is an asset that is decreasing.

Analyze the options provided: The correct journal entry should reflect the reduction in cash and the recognition of the expense incurred.

Match the correct journal entry: Debit 'Expense' to record the cost incurred, and Credit 'Cash' to reflect the payment made.

Verify the logic: Ensure the journal entry aligns with the accounting equation (Assets = Liabilities + Equity) and accurately represents the transaction.