Multiple Choice
A \$15 credit to revenue was mistakenly posted as a \$150 credit. By what amount is the revenue account in error?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Which of the following journal entries correctly shows the effects of purchasing inventory on account?
A
Debit Cash; Credit Inventory
B
Debit Inventory; Credit Accounts Payable
C
Debit Accounts Payable; Credit Inventory
D
Debit Inventory; Credit Cash
Verified step by step guidance1
Understand the transaction: Purchasing inventory on account means the company acquires inventory but does not pay cash immediately. Instead, it creates a liability (Accounts Payable) to pay later.
Identify the accounts involved: The two accounts affected are 'Inventory' (an asset account) and 'Accounts Payable' (a liability account).
Determine the impact on each account: Inventory increases because the company now owns more goods, and Accounts Payable increases because the company owes money for the purchase.
Apply the rules of debits and credits: An increase in an asset account (Inventory) is recorded as a debit, and an increase in a liability account (Accounts Payable) is recorded as a credit.
Write the journal entry: Debit Inventory and Credit Accounts Payable to reflect the increase in inventory and the corresponding liability.
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