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

When a company records the following journal entry:\[\begin{align}\text{Equipment} & \quad \$5,000 \\ \quad \text{Cash} & \quad \$5,000 \end{align}\]What effects does this journal entry have on the accounts?

Decreases Equipment and increases Cash by $5,000 each.

Increases both Equipment and Cash by $5,000 each.

Increases Equipment and decreases Cash by $5,000 each.

Decreases both Equipment and Cash by $5,000 each.

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Verified step by step guidance

Step 1: Understand the journal entry. The journal entry shows that Equipment is debited by $5,000 and Cash is credited by $5,000. In accounting, a debit increases asset accounts (like Equipment), while a credit decreases asset accounts (like Cash).

Step 2: Analyze the impact on the Equipment account. Since Equipment is debited, this means the company is increasing its Equipment account by $5,000, reflecting the acquisition of new equipment.

Step 3: Analyze the impact on the Cash account. Since Cash is credited, this means the company is decreasing its Cash account by $5,000, reflecting the payment made for the equipment.

Step 4: Combine the effects. The journal entry results in an increase in the Equipment account and a decrease in the Cash account, both by $5,000.

Step 5: Verify the correct answer. Based on the analysis, the correct answer is: 'Increases Equipment and decreases Cash by $5,000 each.' This aligns with the principles of double-entry accounting.