question archive A company bought equipment and paid a part of the cost in cash, Which scenario is correct? a) Asset debit, Asset debit, Liability debit
A company bought equipment and paid a part of the cost in cash, Which scenario is correct? a) Asset debit, Asset debit, Liability debit
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A company bought equipment and paid a part of the cost in cash,
Which scenario is correct?
a) Asset debit, Asset debit, Liability debit.
b) Asset credit, Asset debit, Liability debit.
c) Asset debit, Asset credit, Revenue credit.
d) Asset credit, Asset debit, Liability credit.
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Answer is letter D.
More specifically, the entry is:
Debit: Equipment (Asset) XX
Credit: Cash (Asset) XX - downpayment
Credit: Accounts Payable (Liability) XX - for the balance
Take note that an Asset, has a normal DEBIT balance, thus to increase an asset (say in this case Equipment) we debit the asset account: Equipment. To decrease an asset on the other hand, we credit the asset account (say in this case, Cash, since we are partly paying for the equipment in Cash)
A liability on the other hand has a normal CREDIT balance, thus to increase a liability, we credit the liability account. In this case we Credit Accounts payable since we are only partly paying for the equipment in cash. The balance is a liability to be paid later. Consequently, to decrease a liability, we debit the liability account.
