Principles of Financial Accounting.
Principles of Financial Accounting.
22nd Edition
ISBN: 9780077632892
Author: John J. Wild
Publisher: McGraw Hill
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Chapter 2, Problem 1MCQ

Amalia Company received its utility bill for the current period of $700 and immediately paid it. Its journal entry to record this transaction includes a

  1. a. Credit to Utility Expense for $700.
  2. b. Debit to Utility Expense for $700.
  3. c. Debit to Accounts Payable for $700.
  4. d. Debit to Cash for $700.
  5. e. Credit to Common Stock for $700.
Expert Solution & Answer
Check Mark
To determine

Identify the correct option for the given transaction.

Answer to Problem 1MCQ

b. Debit to utility expenses for $700.

Explanation of Solution

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Prepare a journal entry to record the payment incurred on utility expenses for the current period as follows:

DateAccount Title and ExplanationPost Ref

Debit

($)

Credit ($)
Utility expenses700
Cash700
(To record the payment incurred on utility expenses.)

Table (1)

  • A Utility expense is an expense account and it is increased by $700. Expenses are the component of stockholder’s Equity and it decreases the value of equity. Therefore, debit utility expenses account with $700.
  • Cash is an asset, and it is decreased by $700. Therefore, credit cash with $700.

From the above explanation, it is clear that Option (a), (c), (d) and (e) are incorrect and only option (b) is correct.

Conclusion

Therefore, the correct option is Option (b).

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Chapter 2 Solutions

Principles of Financial Accounting.

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