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In a journal entry, when a corporation issues common stock for cash, how is the Common Stock account normally recorded?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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Which journal entry correctly records the purchase of equipment for on credit (no cash paid at the time of purchase)?
A
Debit Expense ; Credit Accounts Payable .
B
Debit Equipment ; Credit Cash .
C
Debit Equipment ; Credit Accounts Payable .
D
Debit Accounts Payable ; Credit Equipment .
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Identify the nature of the transaction: purchasing equipment on credit means acquiring an asset without immediate cash payment.
Determine the accounts affected: Equipment (an asset account) increases, and Accounts Payable (a liability account) increases because the payment is deferred.
Apply the accounting rule that asset accounts increase with a debit, so Equipment should be debited for the purchase amount.
Apply the rule that liability accounts increase with a credit, so Accounts Payable should be credited for the same amount.
Formulate the journal entry as: Debit Equipment \$12,000; Credit Accounts Payable \$12,000, reflecting the increase in assets and liabilities.
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