Which of the following is the correct journal entry when a coin collector buys a set of coins for \$500 in cash?

• A. Debit Cash \$500; Credit Inventory (Coins) \$500
• B. Debit Accounts Payable \$500; Credit Cash \$500
• C. Debit Expense \$500; Credit Revenue \$500
• D. Debit Inventory (Coins) \$500; Credit Cash \$500

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the transaction. The coin collector is purchasing a set of coins for \$500 in cash. This means the collector is acquiring inventory (coins) and paying for it immediately using cash.
2. Step 2: Identify the accounts involved. The two accounts affected are 'Inventory (Coins)' and 'Cash'. Inventory is an asset account, and Cash is also an asset account.
3. Step 3: Determine the impact on each account. Since the collector is acquiring inventory, the 'Inventory (Coins)' account will increase, which requires a debit entry. On the other hand, cash is being used to pay for the purchase, so the 'Cash' account will decrease, which requires a credit entry.
4. Step 4: Apply the double-entry accounting principle. For every transaction, debits must equal credits. In this case, debit 'Inventory (Coins)' for \$500 and credit 'Cash' for \$500.
5. Step 5: Write the journal entry. The correct journal entry is: Debit Inventory (Coins) \$500; Credit Cash \$500. This reflects the increase in inventory and the decrease in cash due to the purchase.