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 journal entries correctly records Badger Biking Company's purchase of inventory on account for $2,000 during June?

Debit Inventory $2,000; Credit Accounts Payable $2,000

Debit Cash $2,000; Credit Inventory $2,000

Debit Accounts Payable $2,000; Credit Inventory $2,000

Debit Inventory $2,000; Credit Cash $2,000

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Verified step by step guidance

Step 1: Understand the nature of the transaction. The company is purchasing inventory on account, meaning they are acquiring goods but have not yet paid cash for them. This creates a liability (Accounts Payable) and increases the asset (Inventory).

Step 2: Recall the accounting equation: Assets = Liabilities + Equity. In this case, Inventory (an asset) increases, and Accounts Payable (a liability) also increases. No cash is involved in this transaction.

Step 3: Determine the correct journal entry format. When recording transactions, debits and credits must balance. For this transaction, you would debit Inventory to increase the asset account and credit Accounts Payable to increase the liability account.

Step 4: Write the journal entry. The debit entry is: Debit Inventory $2,000. The credit entry is: Credit Accounts Payable $2,000. This reflects the increase in inventory and the obligation to pay for it later.

Step 5: Review the other options provided. The other entries involve cash or reverse the accounts incorrectly. Since this transaction is on account, cash is not involved, and the correct accounts are Inventory and Accounts Payable.