When a company records the following journal entry:\[\begin{align*}\text{Equipment} & \quad \$5,000 \\ \quad \text{Cash} & \quad \$5,000 \end{align*}\]What effects does this journal entry have on the accounts?

• A. Decreases Equipment and increases Cash by \$5,000 each.
• B. Increases both Equipment and Cash by \$5,000 each.
• C. Increases Equipment and decreases Cash by \$5,000 each.
• D. Decreases both Equipment and Cash by \$5,000 each.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the journal entry. The journal entry shows that Equipment is debited by \$5,000 and Cash is credited by \$5,000. In accounting, a debit increases asset accounts (like Equipment), while a credit decreases asset accounts (like Cash).
2. Step 2: Analyze the impact on the Equipment account. Since Equipment is debited, this means the company is increasing its Equipment account by \$5,000, reflecting the acquisition of new equipment.
3. Step 3: Analyze the impact on the Cash account. Since Cash is credited, this means the company is decreasing its Cash account by \$5,000, reflecting the payment made for the equipment.
4. Step 4: Combine the effects. The journal entry results in an increase in the Equipment account and a decrease in the Cash account, both by \$5,000.
5. Step 5: Verify the correct answer. Based on the analysis, the correct answer is: 'Increases Equipment and decreases Cash by \$5,000 each.' This aligns with the principles of double-entry accounting.