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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following journal entries results in a decrease in both total assets and stockholders' equity?

Issuing common stock for cash

Borrowing cash from a bank

Purchasing equipment with cash

Recording payment of cash dividends to shareholders

Previous problemNext problem

Verified step by step guidance

Step 1: Understand the impact of paying cash dividends to shareholders. When a company pays cash dividends, it reduces its cash balance, which is an asset, and simultaneously decreases retained earnings, which is a component of stockholders' equity.

Step 2: Recall the accounting equation: Assets = Liabilities + Stockholders' Equity. Any transaction that decreases assets without affecting liabilities will also decrease stockholders' equity to maintain the balance.

Step 3: Analyze the journal entry for paying cash dividends. The entry typically involves debiting 'Dividends' (or 'Retained Earnings') to reduce stockholders' equity and crediting 'Cash' to reduce total assets.

Step 4: Compare this transaction to the other options provided. Issuing common stock for cash increases both assets and stockholders' equity. Borrowing cash from a bank increases assets and liabilities. Purchasing equipment with cash decreases one asset (cash) but increases another asset (equipment), leaving total assets unchanged.

Step 5: Conclude that the correct journal entry resulting in a decrease in both total assets and stockholders' equity is the payment of cash dividends to shareholders.