Bostel wanted to expand the size of its warehouse in order to generate more profits.The company decided to purchase the building adjacent to its existing warehouse.The company pays for the building by borrowing from the bank.The purchase would be recorded as:

Question

Quizplus · Accepted Answer

Since the company is borrowing money from the bank to pay for the building, the transaction should be recorded as a debit to Buildings (an asset) and a credit to Notes Payable (a liability). This reflects that the company has acquired a new asset (the building) but also has a corresponding debt (the loan from the bank). A debit to Cash would only be appropriate if the company had paid for the building using cash on hand.

Bostel Wanted to Expand the Size of Its Warehouse in Order