Multiple Choice
Which manual bookkeeping system has a built-in way to check for errors by ensuring that total debits always equal total credits?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Mandy took out a \$35 loan from the bank. Which of the following is the correct journal entry to record this transaction?
A
Debit Cash \$35; Credit Notes Payable \$35
B
Debit Cash \$35; Credit Interest Expense \$35
C
Debit Notes Payable \$35; Credit Cash \$35
D
Debit Bank Loan \$35; Credit Cash \$35
Verified step by step guidance1
Understand the nature of the transaction: Mandy is receiving cash from the bank as a loan. This means the company is increasing its cash balance and simultaneously creating a liability (Notes Payable) to repay the loan in the future.
Identify the accounts involved: The two accounts affected are 'Cash' (an asset account) and 'Notes Payable' (a liability account). Cash increases, and Notes Payable represents the obligation to repay the loan.
Determine the correct journal entry: In accounting, increases in assets are recorded as debits, and increases in liabilities are recorded as credits. Therefore, Cash will be debited, and Notes Payable will be credited.
Eliminate incorrect options: Review the provided options and eliminate those that do not align with the accounting principles. For example, 'Debit Notes Payable; Credit Cash' is incorrect because Notes Payable is a liability and should be credited, not debited.
Select the correct option: Based on the analysis, the correct journal entry is 'Debit Cash \$35; Credit Notes Payable \$35', as it properly reflects the increase in cash and the creation of a liability.
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