Question

A city orders a new fire truck. A purchase order is placed for the fire truck in the amount of $225,000. The fire truck is received, but the actual cost of the truck was $228,000. The city receives the fire truck and approves a payment for $228,000. Which of the following is a part of the journal entry that should be made when the fire truck is received?

a. Debit Expenditures for $225,000
b. Debit Expenditures for $228,000
c. Debit Fire truck for $225,000
d. Debit Accounts payable for $225,000

Answer 1

The journal entry should include a debit to the Fire truck account for $228,000 and a credit to the Accounts payable account for $228,000.

Step-by-step explanation:

The journal entry that should be made when the fire truck is received is as follows:

Debit Fire truck for $228,000
Credit Accounts payable for $228,000

This journal entry reflects the actual cost of the fire truck, which is $228,000, as well as the liability of the city to pay for it. By debiting the fire truck account, we increase its value on the balance sheet. By crediting the accounts payable account, we recognize the liability of the city to pay for the fire truck.