When a store purchases a jacket for \$20.00 cash for inventory, which of the following is the correct journal entry?

• A. Debit Expense \$20.00; Credit Inventory \$20.00
• B. Debit Inventory \$20.00; Credit Cash \$20.00
• C. Debit Inventory \$20.00; Credit Sales Revenue \$20.00
• D. Debit Cash \$20.00; Credit Inventory \$20.00

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the transaction. The store is purchasing a jacket for \$20.00 cash to add to its inventory. This is an asset purchase, not an expense or revenue transaction.
2. Step 2: Identify the accounts involved. The two accounts affected are 'Inventory' (an asset account) and 'Cash' (another asset account). Inventory increases, and Cash decreases.
3. Step 3: Determine the type of entry for each account. Since Inventory is increasing, it will be debited. Since Cash is decreasing, it will be credited.
4. Step 4: Write the journal entry. The journal entry will be: Debit Inventory \$20.00; Credit Cash \$20.00. This reflects the increase in inventory and the decrease in cash.
5. Step 5: Verify the entry. Ensure that the debit and credit amounts are equal (\$20.00 each) and that the accounts used correctly reflect the nature of the transaction (asset purchase).