Final answer:
To record Jones Dairy's purchase of a new milking machine for $40,000 cash, debit the Equipment account and credit the Cash account by the same amount, reflecting the acquisition of a new asset and the outflow of cash.
Step-by-step explanation:
When Jones Dairy purchases a new milking machine for $40,000 cash, the transaction would be recorded in the company's accounting records with a debit and a credit. In accounting, the purchase of equipment is typically considered an asset, while the cash outflow is a reduction of the company's assets.
The entry to record such a transaction would be as follows:
- Debit the Equipment account for $40,000. This reflects the addition of a new asset to the company's balance sheet.
- Credit the Cash account for $40,000. This reflects the payment made for the milking machine, reducing the company's cash balance.
Here's what the journal entry looks like:
Equipment $40,000
Cash $40,000
This entry impacts both the balance sheet and the cash flow statement of Jones Dairy, though there are no immediate effects on the income statement since the cost of the equipment will be expensed over time through depreciation.