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 is the correct journal entry to record the purchase of $1,000 of supplies on credit on December 31?

Debit Cash $1,000; Credit Supplies $1,000

Debit Accounts Payable $1,000; Credit Supplies $1,000

Debit Supplies $1,000; Credit Accounts Payable $1,000

Debit Supplies Expense $1,000; Credit Cash $1,000

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Verified step by step guidance

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

Step 2: Recall the rules of debits and credits. Assets increase with debits and liabilities increase with credits. Since Supplies is an asset account, it will be debited, and Accounts Payable, a liability account, will be credited.

Step 3: Analyze the incorrect options provided. For example, 'Debit Cash $1,000; Credit Supplies $1,000' is incorrect because cash is not involved in this transaction. Similarly, 'Debit Accounts Payable $1,000; Credit Supplies $1,000' reverses the correct accounts, and 'Debit Supplies Expense $1,000; Credit Cash $1,000' incorrectly treats the purchase as an expense and involves cash.

Step 4: Write the correct journal entry. The correct entry is: Debit Supplies $1,000; Credit Accounts Payable $1,000. This reflects the increase in supplies and the liability created by purchasing on credit.

Step 5: Confirm the date of the transaction. Since the purchase occurred on December 31, ensure the journal entry is recorded with this date to accurately reflect the timing of the transaction in the accounting records.