Purchased $22,000 of cleaning equipment; paid $10,000 cash, with the remainder on account due within 30 days.

Question

BlackTom AI · Accepted Answer

Question restatement: A company purchases cleaning equipment for 22,000, pays 10,000 in cash, and parts the remaining 12,000 on account due within 30 days. The correct journal entry should reflect an increase in Equipment (debit) for 22,000, a decrease in Cash (credit) for 10,000, and an increase in Accounts Payable (credit) for 12,000 because the balance is owed to a supplier.

Option 1: 'Dr. Equipment 22,000; Cr. Cash 10,000; Cr. Accounts Receivable 12,000' — This entry is incorrect because the credit side should reflect a payable to a supplier, not an amount receivable. Accounts Receivable would imply that the company is expecting to collect money from customers, which is not the case here.

Option 2: 'Dr. Cash 10,000; Dr. Accounts Receivable 12,000; Cr. Equipment 22,000' — This is fundamentally flawed: Cash is not increased by a debit when cash is actually paid out (it should be a credit). Debiting Accounts Receivable suggests the company is creating a claim to collect from customers, which does not relate to this purchase. Additionally, Equipment should be debited, not credited, for the asset purchase.

Option 3: 'Dr. Equipment 22,000; Cr. Cash 22,000' — This entry records paying the entire amount in cash, which contradicts the fact that 12,000 was financed on account. It ignores the liability formed (Accounts Payable) and thus is incomplete.

Option 4: 'None of the above' — This option is correct because none of the presented entries accurately reflects the required three-part transaction: a debit to Equipment for 22,000, a credit to Cash for 10,000, and a credit to Accounts Payable for 12,000. The precise correct journal entry would be: Dr Equipment 22,000; Cr Cash 10,000; Cr Accounts Payable 12,000.

Summary of correct entry reasoning: The equipment purchase increases assets (Equipment) and thus requires a debit. The cash payment decreases assets (Cash) and requires a credit. The remaining balance becomes a liability (Accounts Payable) because it is payable to the supplier, thus a credit to Accounts Payable is appropriate. The other options misstate accounts (Accounts Receivable), misstate normal balance directions (debit vs credit for Cash), or omit the payable liability, rendering them incorrect.

Purchased $22,000 of cleaning equipment; paid $10,000 cash, with the remainder on account due within 30 days.Single choice

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