Multiple Choice
Which of the following is the correct journal entry to record the purchase of equipment for \$10,000 in cash on December 31?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Which of the following is the correct journal entry to record the receipt of \$5,000 cash for consulting services provided on December 31?
A
Debit Service Revenue \$5,000; Credit Cash \$5,000
B
Debit Cash \$5,000; Credit Service Revenue \$5,000
C
Debit Accounts Receivable \$5,000; Credit Service Revenue \$5,000
D
Debit Cash \$5,000; Credit Accounts Receivable \$5,000
Verified step by step guidance1
Step 1: Understand the nature of the transaction. The company has received \$5,000 in cash for consulting services provided. This means cash is increasing, and revenue is being recognized for the services performed.
Step 2: Recall the rules of debits and credits. An increase in assets (like cash) is recorded as a debit, and an increase in revenue is recorded as a credit.
Step 3: Identify the accounts involved. The accounts affected are 'Cash' (an asset account) and 'Service Revenue' (a revenue account).
Step 4: Determine the correct journal entry. Since cash is increasing, it will be debited for \$5,000. Since revenue is being recognized, 'Service Revenue' will be credited for \$5,000.
Step 5: Verify the journal entry format. The correct journal entry is: Debit Cash \$5,000; Credit Service Revenue \$5,000. This reflects the increase in cash and recognition of revenue for the consulting services provided.
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