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 a company sells a machine for \$15,000 in cash, which of the following journal entries correctly records the transaction (assuming the machine's book value is \$12,000)?

Debit Equipment \$12,000; Credit Cash \$15,000; Debit Loss on Sale of Equipment \$3,000

Debit Cash \$15,000; Credit Equipment \$15,000

Debit Cash \$12,000; Credit Equipment \$15,000; Credit Gain on Sale of Equipment \$3,000

Debit Cash \$15,000; Credit Equipment \$12,000; Credit Gain on Sale of Equipment \$3,000

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Verified step by step guidance

Step 1: Understand the transaction. The company is selling a machine for $15,000 in cash, and the machine's book value is $12,000. This means the company is receiving more cash than the book value, resulting in a gain on the sale.

Step 2: Identify the accounts involved. The accounts affected are Cash (increased by $15,000), Equipment (decreased by $12,000), and Gain on Sale of Equipment (increased by $3,000).

Step 3: Determine the journal entry format. The journal entry must reflect the increase in Cash (debit), the decrease in Equipment (credit), and the recognition of the Gain on Sale of Equipment (credit).

Step 4: Apply the accounting equation. The equation Assets = Liabilities + Equity must remain balanced. Debiting Cash increases assets, crediting Equipment decreases assets, and crediting Gain on Sale increases equity.

Step 5: Write the journal entry. Debit Cash $15,000, Credit Equipment $12,000, and Credit Gain on Sale of Equipment $3,000. This ensures the transaction is recorded correctly and reflects the gain from the sale.