Multiple Choice
Which journal entry correctly records the purchase of equipment for on credit (no cash paid at the time of purchase)?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
In double-entry accounting, a credit entry will do which of the following?
A
Increase liabilities, increase equity, or increase revenue (and decrease assets, expenses, or dividends/withdrawals).
B
Always increase an account balance regardless of the type of account.
C
Have the same effect as a debit on all accounts.
D
Increase assets, increase expenses, or increase dividends/withdrawals (and decrease liabilities, equity, or revenue).
Verified step by step guidance1
Understand the nature of double-entry accounting, where every transaction affects at least two accounts with debits and credits to keep the accounting equation balanced.
Recall the accounting equation: \(\text{Assets} = \text{Liabilities} + \text{Equity}\), and know that debits and credits affect these accounts differently.
Recognize that a credit entry increases liabilities, equity, and revenue accounts, while it decreases assets, expenses, and dividends/withdrawals accounts.
Note that credits do not always increase an account balance; their effect depends on the type of account involved.
Conclude that credits and debits have opposite effects on accounts, so a credit does not have the same effect as a debit on all accounts.
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