Home › ACCA › Financial Accounting › Asset, Liability and Equity Accounts › Equipment costing $5,000 is bought with a $1,000…
Equipment costing $5,000 is bought with a $1,000 cash down payment and a $4,000 loan. What is the correct journal entry?
ADebit Equipment $1,000; credit Note Payable $4,000
BDebit Cash $1,000 and debit Note Payable $4,000; credit Equipment $5,000
CDebit Equipment $5,000; credit Cash $5,000
DDebit Equipment $5,000; credit Cash $1,000 and credit Note Payable $4,000
Answer & Solution
Correct answer: D. Debit Equipment $5,000; credit Cash $1,000 and credit Note Payable $4,000
1. The asset Equipment increases by its full $5,000 cost, so it is debited $5,000.
2. Cash decreases by the $1,000 down payment, so Cash is credited $1,000.
3. A Note Payable liability of $4,000 is created, so it is credited $4,000.
4. Total credits $1,000 + $4,000 equal the $5,000 debit, satisfying the rule that debits equal credits.
5. Option B reverses the entry; option C ignores the loan; option D records the wrong asset amount.
6. Therefore option A is correct.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.5.4 "Balance Sheet Account Transactions", p.38_
Related questions
At month end, the Cash Dividends account with a $1,000 debit balance is closed. What is thA corporation pays $1,000 of dividends to its shareholders. What is the correct journal enAn investor contributes $10,000 cash to open a new corporation's bank account. What is theWhen a business buys equipment that will last several years, why is the cost debited to EqThe Cash Dividends account is best described as which type of account?Total equity of a corporation is made up of the balances in which two accounts?A key advantage of organising a business as a corporation rather than a sole proprietorshiUnder the cost principle, at what amount are assets recorded in the journal?