Question

Novak Company had the following two transactions related to its delivery truck.

1. Paid $150 for an oil change.
2. Paid $700 to install a special gear unit, which increases the operating efficiency of the truck.
Prepare Novak's journal entries to record these two transactions.

Answer 1

Answer and Explanation:

The Journal entries are shown below:-

1. Maintenance and Repairs Expense Dr, $150

To Cash $150

(Being cash paid is recorded)

Here we debited the maintenance and Repairs Expense as expenses are increasing and we credited the cash as assets are decreasing.

2) Equipment $700

To Cash $700

(Being cash paid is recorded)

Here we debited the equipment as assets are increasing and we credited the cash as assets are decreasing