Question

Of the following sets of accounting entries, which one correctly records the purchase of a piece of equipment? A : a $15,000 increase in cash and a $15,000 decrease in equipment, both entered on the same date B : a $5,000 decrease in cash, a $15,000 increase in notes payable, and a $20,000 increase in equipment, all entered on the same date C : a $14,000 decrease in cash, a $4,000 increase in notes payable, and a $10,000 increase in equipment, all entered on the same date D : a $16,000 decrease in notes payable and a $16,000 increase in equipment, both entered on the same date

Answer 1

Answer: The correct answer is  B : a $5,000 decrease in cash, a $15,000 increase in notes payable, and a $20,000 increase in equipment, all entered on the same date.

Explanation: The option B is correct because we are accounting for a purchase of a piece of equipment. The options in the questions show that the purchase was partly through cash and partly through notes payable. Since that is the case, the appropriate entries should record a cash outflow (credit to cash to decrease it), increase in notes payable as a result (credit to notes payable to increase) and subsequently, increase in equipment (debit to equipment). So, the total credits equal the total debit.