Multiple Choice
Which of the following pieces of information is essential when creating a new general ledger account for landscaping expenses?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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?
A
Debit Commission Expense; Credit Cash
B
Debit Commission Expense; Credit Accounts Payable
C
Debit Cash; Credit Commission Expense
D
Debit Accounts Receivable; Credit Commission Expense
Verified step by step guidance1
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.
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