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

In the context of financial accounting, when a company pays an unlicensed assistant a commission upon the closing of a transaction, how should this be recorded in the journal entries?

Debit Commission Expense; Credit Cash

Debit Commission Expense; Credit Accounts Payable

Debit Cash; Credit Commission Expense

Debit Accounts Receivable; Credit Commission Expense

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Verified step by step guidance

Step 1: Understand the nature of the transaction. The company is paying a commission to an unlicensed assistant upon the closing of a transaction. This payment represents an expense incurred by the company.

Step 2: Identify the accounts involved. The commission payment is an expense, so it will be recorded in the 'Commission Expense' account. The payment method determines whether the credit entry will be to 'Cash' (if paid immediately) or 'Accounts Payable' (if payment is deferred).

Step 3: Determine the journal entry format. In financial accounting, expenses are debited because they reduce equity, and the corresponding credit entry reflects the payment method (either 'Cash' or 'Accounts Payable').

Step 4: Write the journal entry. If the commission is paid immediately, the entry will be: Debit 'Commission Expense'; Credit 'Cash'. If the payment is deferred, the entry will be: Debit 'Commission Expense'; Credit 'Accounts Payable'.

Step 5: Avoid incorrect entries. For example, debiting 'Cash' or 'Accounts Receivable' would not accurately reflect the nature of the transaction, as these accounts are not related to the expense incurred.