Multiple Choice
In the debit-credit framework, increases are entered on the credit side of a(n) what type of account?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
In a perpetual accounting system, which journal entry records the purchase of equipment on account (on credit)?
A
Debit Supplies Expense; Credit Accounts Payable
B
Debit Equipment; Credit Cash
C
Debit Equipment; Credit Accounts Payable
D
Debit Accounts Payable; Credit Equipment
Verified step by step guidance1
Step 1: Understand the nature of the transaction. Purchasing equipment on account means acquiring equipment but not paying cash immediately; instead, the company owes money to the supplier.
Step 2: Identify the accounts involved. The Equipment account increases because the company gains equipment, and the Accounts Payable account increases because the company has a liability to pay in the future.
Step 3: Determine the type of accounts and their normal balances. Equipment is an asset account (normal debit balance), and Accounts Payable is a liability account (normal credit balance).
Step 4: Apply the rules of debit and credit. To increase an asset, debit the Equipment account. To increase a liability, credit the Accounts Payable account.
Step 5: Formulate the journal entry. Debit Equipment to record the increase in assets, and credit Accounts Payable to record the increase in liabilities, reflecting the purchase on credit.
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