When a company purchases equipment for cash, which of the following journal entries correctly reflects the increase or decrease in the respective accounts?

• A. Debit Equipment; Debit Cash
• B. Debit Cash; Credit Equipment
• C. Debit Equipment; Credit Cash
• D. Credit Equipment; Debit Cash

Answer: (C)

Verified step by step guidance

1. Understand the nature of the transaction: The company is purchasing equipment for cash. This means the company is acquiring an asset (equipment) and paying for it using another asset (cash).
2. Recall the accounting principle of double-entry bookkeeping: Every transaction affects at least two accounts, and the total debits must equal the total credits.
3. Identify the accounts involved: Equipment is an asset account, and Cash is also an asset account. Purchasing equipment increases the Equipment account, while paying cash decreases the Cash account.
4. Determine the correct journal entry: To increase an asset account (Equipment), you debit it. To decrease an asset account (Cash), you credit it. Therefore, the correct journal entry is 'Debit Equipment; Credit Cash.'
5. Verify the logic: Debiting Equipment reflects the increase in the company's assets, while crediting Cash reflects the decrease in cash due to the payment. This ensures the transaction is recorded accurately in the company's books.