Multiple Choice
When a company purchases equipment on credit (i.e., signs a note payable or buys on account), which journal entry correctly records the transaction at the purchase date?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
In journal entries using the debit/credit system, which type of account is increased with a credit?
A
Dividends (or Withdrawals)
B
Expenses
C
Assets
D
Liabilities
Verified step by step guidance1
Understand the basic accounting equation: \(\text{Assets} = \text{Liabilities} + \text{Equity}\). This equation is the foundation of double-entry bookkeeping.
Recall that in the debit/credit system, asset and expense accounts are increased by debits and decreased by credits, while liability, equity, and revenue accounts are increased by credits and decreased by debits.
Identify the types of accounts listed: Dividends (or Withdrawals) and Expenses are typically increased by debits, Assets are increased by debits, and Liabilities are increased by credits.
Recognize that since the question asks which account type is increased with a credit, the correct category is Liabilities, as they increase on the credit side.
Summarize that in journal entries, credits increase liability accounts, equity accounts, and revenue accounts, while debits increase asset, expense, and dividend accounts.
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