Multiple Choice
When a corporation pays a note payable and the related interest, which of the following journal entries is correct?
89
views
2. Transaction Analysis
Journal Entries: Debits and Credits
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
When a company buys a new machine for cash, which of the following journal entries correctly records the transaction?
A
Debit Cash; Credit Revenue
B
Debit Equipment; Credit Cash
C
Debit Cash; Credit Equipment
D
Debit Expense; Credit Cash
Verified step by step guidance1
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.
2:35mWatch next
Master Journal Entries: Debits and Credits with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Journal Entries: Debits and Credits practice set
Problem sets built by lead tutorsExpert video explanations