Question

sam paid for the truck refit. Parts and installation cost $4000, freight costs $3000, & insurance on freight another $1,800. (All prices include GST). Pass the journal entry.

there are only few accounts from which we to select they are;-

Cost of Goods Sold, Inventory, Office supplies, Office supplies expenses, utilities payable, utilities expenses, cash.

Answer 1

Journal entry

Name of the accounts	Debit	Credit
Utilities expenses	$ 8,800
Cash		$ 8,800
( Being truck refit expenses are paid by cash )

Explanation : Why the rest of the accounts are not been chosen:

Cost of goods sold : It only includes opening stock, net purchase and direct expenses related to production . But truck refit expenditure are not directly related with production .

Inventory : It includes stock of raw materials ,semi finished goods , finished goods and stock in trade for trading business. Truck refit expenditure are not related with any of the above classifications of inventory.

Office supplies : It is an asset, which is used for daily office work. Truck refit expenses not related to it.

Office supplies expenses : It is the expenses that has been consumed by the office during a period of time. It reduces the balance of office supplies.

Utilities payable : It is a liability ,but here , Sam paid the money what actually incurred , so there is no chance for arising a new liability.

Utilities expenses : It is the cost of using utilities, like, electricity , water, waste disposal . Here, it has been assumed that without a technically serviced truck , transportation will be disturbed . That is why the total amount paid for it has been debited  as utilities expenses because the truck can provide transportation utility.

Cash: The total amount paid in cash, so cash account has been credited.

Note: Actually the above expenditure for truck refit should be debited in repairs and maintenance expenses.