When a company buys a new machine for cash, which of the following journal entries correctly records the transaction?

• A. Debit Cash; Credit Revenue
• B. Debit Equipment; Credit Cash
• C. Debit Cash; Credit Equipment
• D. Debit Expense; Credit Cash

Answer: (B)

Verified step by step guidance

1. Understand the nature of the transaction: The company is purchasing a new machine, which is an asset, using cash. This means the company is exchanging one asset (cash) for another asset (equipment).
2. Identify the accounts involved: The accounts affected are 'Equipment' (an asset account) and 'Cash' (another asset account).
3. Determine the type of entry for each account: Since the company is acquiring equipment, the 'Equipment' account will increase, which requires a debit entry. On the other hand, the 'Cash' account will decrease because cash is being spent, which requires a credit entry.
4. Apply the accounting equation: The accounting equation (Assets = Liabilities + Equity) must remain balanced. Debiting 'Equipment' increases assets, while crediting 'Cash' decreases assets, keeping the equation balanced.
5. Record the journal entry: The correct journal entry is 'Debit Equipment; Credit Cash,' as this reflects the increase in equipment and the decrease in cash due to the purchase.