ACCA Applied Knowledge · Financial Accounting · General ledger accounts and journal entries
Marlow Co buys a machine for $18,000 on credit from Tyne Ltd. Which of the following correctly records the transaction?
Debit machinery and credit trade payables for $18,000. The machine is a non-current asset, not goods for resale, so it is not charged to purchases. Because it was bought on credit, the credit goes to payables rather than bank.
- ADebit Machinery $18,000; Credit Trade payables $18,000Correct
- BDebit Purchases $18,000; Credit Trade payables $18,000
- CDebit Trade payables $18,000; Credit Machinery $18,000
- DDebit Machinery $18,000; Credit Bank $18,000
Explanation
A machine is a non-current asset, so it is debited to machinery (asset increase). The credit is to payables as it is bought on credit. Purchases is for goods for resale, so option B is wrong. Option D wrongly uses bank, as no cash was paid.
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