accounting Made Simple 11

Question 1

p. 47

1. A company uses 40k cash to purchase a new piece of equipment. What is the JOURNAL ENTRY?

Answer 1

equipment (asset)…….40k
cash (asset)………………40k

Therefore, the Accounting Equation remains in balance.

Question 2

2. Now, the company purchases 40k worth of equipment on CREDIT, what is the JOURNAL ENTRY?

Answer 2

equipment (asset)…….40k
     notes payable (liab)……40k

The Accounting Equation is still in balance.

Question 3

3. Why is the card you use to take your money out of your checking account called a DEBIT card?

Answer 3

Because YOUR checking account is an asset to you BUT A LIABILITY to your bank.
The bank is reducing their debt (LIABILITY) to you when you take out your money, and LIABILITIES ARE REDUCED WITH DEBITS.

Question 4

4. What is an easy way to remember what is a Dr and what is a Dr?

Answer 4

YOUR LEFT HAND IS DEBIT. YOUR RIGHT HAND IS CREDIT.
Accounts on the LEFT side of the accounting equation (ASSETS) increase with DEBITS.
Accounts on the RIGHT side of the accounting equation (LIABILITIES, CAPITAL) increase with CREDITS.

Question 5

5. ABC Construction takes out 50k loan from a bank. The entry on the JOURNAL is:

Answer 5

cash (asset)….50k
   notes payable (liab)..50k

Question 6

6. ABC Construction purchases 10k worth of building supplies, on CREDIT. The entry is:

Answer 6

building supplies (asset)…10k
     accounts payable (liability)..10k

Question 7

7. ABC Construction then pays the vendor the entire 10k. The JOURNAL ENTRY is:

Answer 7

accounts payable (liab)...10k
     cash (asset)………………..10k