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Difficulty: EasyLedger Classification and Double Entry Rules

Which of the following accounting entries is correct when a business purchases office equipment on credit from Ade & Co.?

  1. Debit Equipment Account, Credit Ade & Co. AccountAnswer
  2. B
    Debit Purchases Account, Credit Ade & Co. Account
  3. C
    Debit Ade & Co. Account, Credit Equipment Account
  4. D
    Debit Equipment Account, Credit Discount Allowed Account

Answer

Debit Equipment Account, Credit Ade & Co. Account
When office equipment is purchased on credit, the business acquires a non-current asset (which must be debited) and incurs a financial obligation/liability to the supplier (which must be credited).

Step-by-Step Solution

1
Identify the nature of the accounts involved in the transaction.
Equipment Account is a Real/Asset account, and Ade & Co. Account is a Personal/Liability account.
Office equipment is a non-current asset being acquired, while Ade & Co. is a trade creditor.
2
Apply the double entry rules of bookkeeping.
Debit Equipment Account (increase in asset) and Credit Ade & Co. Account (increase in liability).
The rule states: Debit what comes in (or increase in assets) and Credit the giver (or increase in liabilities).

Key Concept

Double Entry Rules for Credit Purchases of Non-Current Assets
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Topics

Ledger Classification and Double Entry Rules

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