Multiple Choice
The journal entry to record indirect materials used in production is to:
30
views
2. Transaction Analysis
Journal Entries: Debits and Credits
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
When a company purchases inventory on account, which of the following journal entries is correct?
A
Debit Inventory; Credit Accounts Payable
B
Debit Inventory; Credit Cash
C
Debit Cash; Credit Inventory
D
Debit Accounts Payable; Credit Inventory
Verified step by step guidance1
Understand the transaction: The company is purchasing inventory on account, meaning it is acquiring goods but has not yet paid for them. This creates a liability (Accounts Payable) and increases the asset (Inventory).
Recall the accounting equation: Assets = Liabilities + Equity. In this case, Inventory (an asset) increases, and Accounts Payable (a liability) also increases. This keeps the accounting equation balanced.
Determine the journal entry: When an asset increases, it is debited. When a liability increases, it is credited. Therefore, the correct journal entry involves debiting Inventory and crediting Accounts Payable.
Eliminate incorrect options: Review the other options provided. Debit Inventory; Credit Cash is incorrect because cash is not involved in this transaction. Debit Cash; Credit Inventory is incorrect because cash is not being paid, and inventory is not being sold. Debit Accounts Payable; Credit Inventory is incorrect because this would represent a payment of a liability, not a purchase.
Conclude the correct journal entry: The correct journal entry for purchasing inventory on account is Debit Inventory; Credit Accounts Payable.
2:35mWatch next
Master Journal Entries: Debits and Credits with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Journal Entries: Debits and Credits practice set
Problem sets built by lead tutorsExpert video explanations