Green Cleaning purchased $590 of office supplies on credit. The company’s policy is to initially record prepaid and unearned items in balance sheet accounts. Which of the following general Journal entries will Green Cleaning make to record this transaction?
Debit Office supplies expense, $590. credit Cash $590
Debit Cash, $590, credit Office supplies, $590
Debit Office supplies, $590; Credit Cash, $590
Debit Office supplies, $590; credit Accounts payable, $590
The correct answer and explanation is :
The correct journal entry for Green Cleaning’s purchase of office supplies on credit is:
Debit: Office Supplies, $590
Credit: Accounts Payable, $590
This entry reflects the acquisition of office supplies (an asset) and the corresponding liability to pay the supplier in the future.
Explanation:
When a company purchases office supplies on credit, it acquires assets that are essential for daily operations. Simultaneously, it incurs an obligation to the supplier, resulting in an account payable. Recording these transactions accurately ensures that both the company’s assets and liabilities are correctly represented in the financial statements.
Detailed Breakdown:
- Debit Office Supplies, $590:
- Asset Recognition: Office supplies are tangible items used in the company’s routine activities. Purchasing them increases the assets available for operations.
- Accounting Treatment: Debiting the Office Supplies account reflects this increase in assets.
- Credit Accounts Payable, $590:
- Liability Recognition: Since the purchase is made on credit, the company has an obligation to pay the supplier in the future.
- Accounting Treatment: Crediting the Accounts Payable account acknowledges this liability.
Alternative Journal Entries and Their Explanations:
- Debit Office Supplies Expense, $590; Credit Cash, $590:
- Incorrect: This entry suggests that the office supplies were immediately expensed and paid for in cash. However, the purchase was made on credit, not paid for immediately.
- Debit Cash, $590; Credit Office Supplies, $590:
- Incorrect: This entry indicates that cash was received and office supplies were sold, which contradicts the nature of the transaction where supplies are purchased on credit.
- Debit Office Supplies, $590; Credit Cash, $590:
- Incorrect: This entry implies that office supplies were purchased and paid for immediately in cash. However, the transaction was on credit, not a cash purchase.
By recording the purchase of office supplies on credit with a debit to Office Supplies and a credit to Accounts Payable, Green Cleaning ensures that its financial records accurately reflect the increase in assets and the corresponding liabilities. This practice aligns with standard accounting principles, ensuring that both the balance sheet and income statement present a true and fair view of the company’s financial position.
Visual Representation:
Here’s a simple table illustrating the correct journal entry:
| Account | Debit ($) | Credit ($) |
|---|---|---|
| Office Supplies | 590 | |
| Accounts Payable | 590 |
This table provides a clear and concise view of the transaction, aiding in understanding and verification of the accounting treatment.