Amalia Company received its utility bill for the current period of $700 and immediately paid it. Its
- a. Credit to Utility Expense for $700.
- b. Debit to Utility Expense for $700.
- c. Debit to Accounts Payable for $700.
- d. Debit to Cash for $700.
- e. Credit to Common Stock for $700.
Identify the correct option for the given transaction.
Answer to Problem 1MCQ
b. Debit to utility expenses for $700.
Explanation of Solution
Journal entry:
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Prepare a journal entry to record the payment incurred on utility expenses for the current period as follows:
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
Utility expenses | 700 | |||
Cash | 700 | |||
(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.
Therefore, the correct option is Option (b).
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Chapter 2 Solutions
Principles of Financial Accounting, Chapters 1-17 - With Access (Looseleaf)
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