Which of the following best describes how Spade Company should record the purchase of equipment for \$5,000 cash in its journal entries?

• A. Debit Equipment \$5,000; Credit Cash \$5,000
• B. Debit Supplies \$5,000; Credit Cash \$5,000
• C. Debit Cash \$5,000; Credit Equipment \$5,000
• D. Debit Equipment \$5,000; Credit Accounts Payable \$5,000

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the nature of the transaction. Spade Company is purchasing equipment for \$5,000 cash. Equipment is a long-term asset, and cash is a current asset. This transaction involves an exchange of assets, where equipment increases and cash decreases.
2. Step 2: Identify the accounts affected. The accounts involved are 'Equipment' (an asset account) and 'Cash' (another asset account). Since equipment is being acquired, it will be debited, and since cash is being used to pay for it, it will be credited.
3. Step 3: Apply the rules of debits and credits. In accounting, debits increase asset accounts, while credits decrease asset accounts. Therefore, 'Equipment' will be debited to reflect the increase in the asset, and 'Cash' will be credited to reflect the decrease in the asset.
4. Step 4: Write the journal entry. The journal entry will be: Debit Equipment \$5,000; Credit Cash \$5,000. This reflects the increase in equipment and the decrease in cash due to the purchase.
5. Step 5: Verify the journal entry. Ensure that the debit and credit amounts are equal (\$5,000 each) and that the accounts used correctly reflect the nature of the transaction. This ensures the accounting equation (Assets = Liabilities + Equity) remains balanced.