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

When a company buys a new machine for cash, which of the following journal entries correctly records the transaction?

Debit Cash; Credit Revenue

Debit Equipment; Credit Cash

Debit Cash; Credit Equipment

Debit Expense; Credit Cash

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Verified step by step guidance

Understand the nature of the transaction: The company is purchasing a new machine, which is an asset, using cash. This means the company is exchanging one asset (cash) for another asset (equipment).

Identify the accounts involved: The accounts affected are 'Equipment' (an asset account) and 'Cash' (another asset account).

Determine the type of entry for each account: Since the company is acquiring equipment, the 'Equipment' account will increase, which requires a debit entry. On the other hand, the 'Cash' account will decrease because cash is being spent, which requires a credit entry.

Apply the accounting equation: The accounting equation (Assets = Liabilities + Equity) must remain balanced. Debiting 'Equipment' increases assets, while crediting 'Cash' decreases assets, keeping the equation balanced.

Record the journal entry: The correct journal entry is 'Debit Equipment; Credit Cash,' as this reflects the increase in equipment and the decrease in cash due to the purchase.