Multiple Choice
Which of the following journal entries correctly records the purchase of office supplies for \$500 cash by Sustain Company?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
When a business makes a cash payment, how is this transaction recorded in the cash account?
A
As a credit to the cash account
B
As both a debit and a credit to the cash account
C
It is not recorded in the cash account
D
As a debit to the cash account
Verified step by step guidance1
Understand the nature of the cash account: In accounting, the cash account is an asset account that tracks the inflow and outflow of cash. When cash is paid out, it decreases the balance of the cash account.
Recall the rules of debit and credit: In accounting, debits increase asset accounts, while credits decrease asset accounts. Since the cash account is an asset account, a cash payment will be recorded as a credit to reduce the balance.
Analyze the transaction: A cash payment represents an outflow of cash, which decreases the cash account. Therefore, the transaction must be recorded as a credit in the cash account.
Eliminate incorrect options: The option 'As both a debit and a credit to the cash account' is incorrect because a single transaction does not simultaneously debit and credit the same account. The option 'It is not recorded in the cash account' is incorrect because all cash transactions must be recorded in the cash account. The option 'As a debit to the cash account' is incorrect because debits increase asset accounts, and a cash payment decreases the cash account.
Select the correct answer: Based on the analysis, the correct answer is 'As a credit to the cash account,' as this reflects the decrease in the cash account due to the payment.
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