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

Which of the following correctly describes the journal entry to record the purchase of materials on account?

Debit Accounts Payable; Credit Materials

Debit Cash; Credit Materials

Debit Materials; Credit Accounts Payable

Debit Materials; Credit Cash

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Verified step by step guidance

Step 1: Understand the nature of the transaction. The purchase of materials on account means the company is acquiring materials but has not yet paid for them. This creates a liability (Accounts Payable) and increases the asset (Materials).

Step 2: Recall the rules of debits and credits. Assets increase with a debit, and liabilities increase with a credit. Since Materials is an asset and Accounts Payable is a liability, the journal entry must reflect these changes.

Step 3: Determine the correct accounts to use. For this transaction, the Materials account will be debited to reflect the increase in assets, and the Accounts Payable account will be credited to reflect the increase in liabilities.

Step 4: Write the journal entry. The format will be: Debit Materials (to increase the asset) and Credit Accounts Payable (to increase the liability).

Step 5: Verify the journal entry. Ensure that the debit and credit amounts are equal, and confirm that the accounts used align with the nature of the transaction (purchase of materials on account).