Question

The purchase of a building with a cash down payment and a written promise to pay the balance in the future would include a:

a) Debit to Cash and a debit to Note Payable
b) Debit to Cash and a credit to Buildings
c) Debit to Note Payable and a credit to Cash
d) Credit to Cash and a credit to Note Payable

Answer 1

The correct ledger entry for purchasing a building with a down payment and a promissory note is a debit to Buildings for the full amount, a credit to Cash for the down payment, and a credit to Note Payable for the remaining balance.

Step-by-step explanation:

The purchase of a building with a cash down payment and a written promise to pay the balance in the future would include a debit to Buildings for the entire purchase price, a credit to Cash for the amount of the down payment, and a credit to Note Payable for the balance that will be paid in the future. This is because the purchase of an asset (the building) will increase the asset side of the balance sheet, and this increase is recorded as a debit. The cash payment reduces the company's cash asset, which is a credit. The promise to pay the balance in the form of a note payable increases the company's liabilities, which is also recorded as a credit.

Using an example for clarity, if a company buys a building for $100,000 with a $20,000 cash down payment and a $80,000 note payable, the accounting entry would be to debit Buildings for $100,000, credit Cash for $20,000, and credit Note Payable for $80,000.