Which of the following best describes the effect on journal entries when a company purchases equipment for cash?

• A. Debit Equipment, Credit Cash
• B. Debit Equipment, Credit Accounts Payable
• C. Debit Accounts Payable, Credit Equipment
• D. Debit Cash, Credit Equipment

Answer: (A)

Verified step by step guidance

1. Understand the nature of the transaction: The company is purchasing equipment, which is an asset, and paying for it in cash, which is another asset. This transaction involves a decrease in cash and an increase in equipment.
2. Recall the basic accounting principle: Assets are increased with a debit and decreased with a credit. Therefore, the Equipment account will be debited to reflect the increase in the asset.
3. Recognize that cash is being used to pay for the equipment. Since cash is an asset and it is decreasing, the Cash account will be credited to reflect the reduction in the asset.
4. Eliminate incorrect options: 'Debit Equipment, Credit Accounts Payable' is incorrect because the payment is made in cash, not on credit. 'Debit Accounts Payable, Credit Equipment' is incorrect because Accounts Payable is not involved in this transaction. 'Debit Cash, Credit Equipment' is incorrect because equipment is being purchased, not sold.
5. Conclude the correct journal entry: The correct journal entry for this transaction is 'Debit Equipment, Credit Cash,' as it reflects the increase in equipment and the decrease in cash.