Which of the following journal entries correctly records Badger Biking Company's purchase of inventory on account for \$2,000 during June?

• A. Debit Inventory \$2,000; Credit Accounts Payable \$2,000
• B. Debit Cash \$2,000; Credit Inventory \$2,000
• C. Debit Accounts Payable \$2,000; Credit Inventory \$2,000
• D. Debit Inventory \$2,000; Credit Cash \$2,000

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the nature of the transaction. The company is purchasing inventory on account, meaning they are acquiring goods but have not yet paid cash for them. This creates a liability (Accounts Payable) and increases the asset (Inventory).
2. Step 2: Recall the accounting equation: Assets = Liabilities + Equity. In this case, Inventory (an asset) increases, and Accounts Payable (a liability) also increases. No cash is involved in this transaction.
3. Step 3: Determine the correct journal entry format. When recording transactions, debits and credits must balance. For this transaction, you would debit Inventory to increase the asset account and credit Accounts Payable to increase the liability account.
4. Step 4: Write the journal entry. The debit entry is: Debit Inventory \$2,000. The credit entry is: Credit Accounts Payable \$2,000. This reflects the increase in inventory and the obligation to pay for it later.
5. Step 5: Review the other options provided. The other entries involve cash or reverse the accounts incorrectly. Since this transaction is on account, cash is not involved, and the correct accounts are Inventory and Accounts Payable.