To record the purchase of equipment that is fully financed by the seller, you would
A)debit a liability and credit an asset.
B)debit an asset and credit cash.
C)debit an asset and credit a liability.
D)debit an asset and credit shareholders' equity.
E)debit a liability and credit shareholders' equity.

Question

Quizplus · Accepted Answer

When equipment is fully financed by the seller, it means that the company did not have to pay any cash to purchase the equipment. Therefore, there is no cash outflow, and the credit to cash does not apply. The equipment acquired is recorded as an asset, and the obligation to pay the seller for the equipment is recorded as a liability. Hence, we debit an asset and credit a liability to record the purchase of equipment that is fully financed by the seller.

To Record the Purchase of Equipment That Is Fully Financed