A business purchases equipment costing $5,500. They pay $1,500 right away and charge the remaining amount. To record this transaction, the business would:
A)Debit Equipment $5,500; Credit Cash $1,500 and Credit Accounts Payable $4,000
B)Debit Equipment $5,500; Credit Accounts Payable $5,500
C)Debit Equipment $4,000; Credit Accounts Payable $4,000
D)Debit Equipment $1,500; Credit Cash $1,500

Question

Quizplus · Accepted Answer

The business purchased equipment worth $5,500 and paid $1,500 in cash upfront. Therefore, the remaining amount charged is $4,000.

The equipment account needs to be debited because it is an asset that the business has acquired.

Cash account needs to be credited because the business has paid $1,500 at the time of the purchase.

Accounts payable account needs to be credited because the business has charged the remaining $4,000 for the equipment purchase which will be paid at a later date.

Therefore, the correct journal entry would be:

Debit Equipment $5,500
Credit Cash $1,500
Credit Accounts Payable $4,000 The business is purchasing equipment costing $5,500 but paying only $1,500 right away. Therefore, the remaining amount will be charged, which means the business will have an accounts payable for $4,000. This transaction involves both cash and credit, so we need to debit equipment for $5,500 (to increase the value of the asset) and credit cash for $1,500 (to decrease the amount of cash). Additionally, we need to credit accounts payable for $4,000 (to increase the liability). Thus, the journal entry will be: Debit Equipment $5,500; Credit Cash $1,500 and Credit Accounts Payable $4,000.

A Business Purchases Equipment Costing $5,500