Question

A machine costing $20,000 is purchased by paying $5,000 cash and signing a note payable for the remainder. The journal entry should include:

a. Credit to Notes Payable.
b. Debit to Cash.
c. Credit to Notes Receivable.
d. Credit to Equipment.

Answer 1

The correct journal entry for the purchase of a machine with a mix of cash and note payable includes a debit to Equipment, a credit to Cash, and a credit to Notes Payable.

Step-by-step explanation:

The journal entry for a machine purchased with a combination of cash and a note payable should reflect the decrease in cash and the increase in both the asset account for the equipment and the liability represented by the note payable. So the correct entries would be:

• Debit to Equipment for the full amount of the purchase ($20,000).
• Credit to Cash for the amount paid in cash ($5,000).
• Credit to Notes Payable for the remaining amount financed through the note ($15,000).

Option c, Credit to Notes Receivable, would not be included in this transaction as no receivables are created by the purchaser. Instead, the seller or lender may record a note receivable.