Multiple Choice
When recording the application of factory overhead in a journal entry, how should factory overhead variances be treated?
113
views
2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Which of the following is one effect of a purchase of \$300 of supplies on credit?
A
Increase Cash by \$300
B
Decrease Accounts Payable (a liability) by \$300
C
Decrease Supplies Expense by \$300
D
Increase Supplies (an asset) by \$300
Verified step by step guidance1
Step 1: Understand the transaction. The purchase of \$300 of supplies on credit means the company acquires supplies (an asset) but does not pay cash immediately. Instead, it incurs a liability (Accounts Payable).
Step 2: Analyze the impact on the accounting equation. The accounting equation is Assets = Liabilities + Equity. Since supplies are an asset, they will increase by \$300. Accounts Payable, a liability, will also increase by \$300 to reflect the obligation to pay later.
Step 3: Determine which accounts are affected. The Supplies account (an asset) will increase by \$300, and the Accounts Payable account (a liability) will increase by \$300. Cash is not affected because the purchase was made on credit.
Step 4: Eliminate incorrect options. 'Increase Cash by \$300' is incorrect because no cash was involved. 'Decrease Accounts Payable by \$300' is incorrect because the liability increases, not decreases. 'Decrease Supplies Expense by \$300' is incorrect because this transaction does not involve an expense account.
Step 5: Confirm the correct answer. The correct effect of the transaction is 'Increase Supplies (an asset) by \$300,' as the supplies acquired are recorded as an asset on the balance sheet.
Related Videos
Related Practice
