On 2/15, what account is debited and what account is credited when Ryann's paid for the $2,000 inventory?
Understand the Problem
The question is asking to determine the journal entry for a transaction where Ryann's bicycle shop pays off its inventory purchase. This involves identifying which accounts are debited and credited in the transaction when the payment is made.
Answer
Cash account is credited and Accounts Payable account is debited.
On 2/15, when Ryann's paid for the $2,000 inventory, the Cash account is credited and the Accounts Payable account is debited.
Answer for screen readers
On 2/15, when Ryann's paid for the $2,000 inventory, the Cash account is credited and the Accounts Payable account is debited.
More Information
In double-entry accounting, paying an existing liability results in a credit to cash (as cash leaves the company) and a debit to accounts payable (as the company reduces what it owes).
Tips
A common mistake is to confuse which account should be debited or credited. Remember that paying off liabilities reduces the cash account balance (credit) and also reduces liabilities (debit to accounts payable).
Sources
- ACG 2021 Exam 1 Sample Questions - coursehero.com
- Debits and Credits: In-Depth Explanation with Examples - accountingcoach.com
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