Question

Problem 2:
For each journal entry, prepare an explanation of the business event that is being
represented:

a. Loan payable $57,000
Cash $11,400
Inventory $45,600


b. Accounts payable $13,450
Cash $13,450

a. The company borrowed $57,000 from a bank. $45,600 of this was used to purchase inventory. An increase in cash Assets and an increase in Liabilities is the result.
b. The company purchased $13,450 worth of inventory on credit (will pay later). The inventory is resold at a later date. This causes an increase in Assets and in Liabilities.
b. Paid $13,450 for items previously purchased on account. This causes a decrease in Assets and in Liabilities and no change to Equity. (From Chapter 3, p. 94)