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

Which of the following best describes how Spade Company should record the purchase of equipment for $5,000 cash in its journal entries?

Debit Equipment $5,000; Credit Cash $5,000

Debit Supplies $5,000; Credit Cash $5,000

Debit Cash $5,000; Credit Equipment $5,000

Debit Equipment $5,000; Credit Accounts Payable $5,000

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Verified step by step guidance

Step 1: Understand the nature of the transaction. Spade Company is purchasing equipment for $5,000 cash. Equipment is a long-term asset, and cash is a current asset. This transaction involves an exchange of assets, where equipment increases and cash decreases.

Step 2: Identify the accounts affected. The accounts involved are 'Equipment' (an asset account) and 'Cash' (another asset account). Since equipment is being acquired, it will be debited, and since cash is being used to pay for it, it will be credited.

Step 3: Apply the rules of debits and credits. In accounting, debits increase asset accounts, while credits decrease asset accounts. Therefore, 'Equipment' will be debited to reflect the increase in the asset, and 'Cash' will be credited to reflect the decrease in the asset.

Step 4: Write the journal entry. The journal entry will be: Debit Equipment $5,000; Credit Cash $5,000. This reflects the increase in equipment and the decrease in cash due to the purchase.

Step 5: Verify the journal entry. Ensure that the debit and credit amounts are equal ($5,000 each) and that the accounts used correctly reflect the nature of the transaction. This ensures the accounting equation (Assets = Liabilities + Equity) remains balanced.