Multiple Choice
If an accident results in \$8,000 in direct costs that are paid in cash, which of the following is the correct journal entry?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
How would a purchase of merchandise for cash be recorded in the journal?
A
Debit Cash; Credit Merchandise Inventory
B
Debit Merchandise Inventory; Credit Cash
C
Debit Accounts Payable; Credit Merchandise Inventory
D
Debit Merchandise Inventory; Credit Accounts Payable
Verified step by step guidance1
Step 1: Understand the nature of the transaction. A purchase of merchandise for cash means the company is acquiring inventory and paying for it immediately using cash.
Step 2: Identify the accounts involved. The two accounts affected are 'Merchandise Inventory' (an asset account) and 'Cash' (another asset account).
Step 3: Determine the impact on each account. Since the company is acquiring inventory, the 'Merchandise Inventory' account will increase (debit). Since cash is being used to pay for the purchase, the 'Cash' account will decrease (credit).
Step 4: Apply the rules of debit and credit. Assets increase with a debit and decrease with a credit. Therefore, 'Merchandise Inventory' is debited, and 'Cash' is credited.
Step 5: Record the journal entry. The journal entry would be: Debit 'Merchandise Inventory' and Credit 'Cash' for the amount of the purchase.
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