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 Excel setup of a loan amortization problem, which of the following typically occurs when recording the first payment in the journal entries?

A debit to Loan Payable and a credit to Interest Expense

A debit to Cash and a credit to Loan Payable

A debit to Interest Expense and Loan Payable, and a credit to Cash

A debit to Interest Expense and a credit to Cash

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Verified step by step guidance

Understand the components of a loan amortization schedule: Loan amortization involves breaking down each payment into principal repayment and interest expense. The journal entry for the first payment reflects these components.

Analyze the payment structure: Each payment typically includes an interest expense (cost of borrowing) and a reduction in the loan principal (Loan Payable). The total payment reduces the cash balance.

Determine the journal entry: For the first payment, you need to record the interest expense and the reduction in the loan principal as debits, and the cash payment as a credit. This reflects the outflow of cash and the allocation of the payment.

Use the correct accounts: Debit 'Interest Expense' to record the cost of borrowing, debit 'Loan Payable' to reduce the principal balance, and credit 'Cash' to reflect the payment made.

Verify the logic: Ensure the journal entry aligns with the accounting equation (Assets = Liabilities + Equity). The reduction in cash (asset) corresponds to the decrease in liabilities (Loan Payable) and the recognition of an expense (Interest Expense).