Which of the following is the correct effect on accounts when a company purchases equipment for cash?

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

Answer: (B)

Verified step by step guidance

1. Understand the nature of the transaction: When a company purchases equipment for cash, it is acquiring a tangible asset (equipment) and reducing another asset (cash). This transaction does not involve liabilities such as accounts payable.
2. Recall the accounting equation: Assets = Liabilities + Equity. In this case, the purchase affects only the asset side of the equation, increasing equipment and decreasing cash.
3. Apply the rules of debits and credits: Debits increase asset accounts, while credits decrease asset accounts. Since equipment is being acquired, it is debited, and since cash is being used, it is credited.
4. Analyze the options provided: The correct journal entry should reflect a debit to Equipment (increase in asset) and a credit to Cash (decrease in asset). The other options either incorrectly involve accounts payable or reverse the debit and credit entries.
5. Conclude the correct effect: The correct journal entry for purchasing equipment for cash is 'Debit Equipment, Credit Cash,' as this properly reflects the increase in equipment and decrease in cash.