Question

Kate made a $475 payment on her company van. How should she record this transaction in her accounts?

1) Credit Accounts Payable and debit the automobile account
2) Credit the automobile account and debit Accounts Payable
3) Credit Cash and debit Accounts Payable
4) Credit Accounts Payable and debit Cash

Answer 1

The correct answer is option 4. Kate should record the $475 payment as a debit to Accounts Payable and a credit to Cash, accurately reflecting the decrease in liabilities and cash respectively.

Step-by-step explanation:

When Kate makes a $475 payment on her company van, she is essentially settling an obligation or paying off a liability. This transaction is likely to reduce her cash balance while also reducing her liabilities under 'Accounts Payable' if the payment was made on account.

The correct way to record this transaction would be to debit Accounts Payable for $475, since she is decreasing this liability account, and to credit Cash for $475, as her cash balance decreases by that payment amount. Therefore, the correct option to record Kate's transaction is: 4) Credit Accounts Payable and debit Cash.