Question

he purchase of a building with a cash down payment and a written promise to pay the balance in the future would include​ a:

A.

debit to Cash and a credit to Buildings

B.

debit to Cash and a debit to Note Payable

C.

debit to Note Payable and a credit to Cash

D.

credit to Cash and a credit to Note Payable

Answer 1

Solution:

As per the information given in the question

a) A building is purchased

b) with a cash down payment and

c) a written promise to pay the balance in the future

Thus when the building is purchased we debit the Buildings a/c as it is an increase in asset. An increase in asset is recorded by debiting the related asset account

Cash down payment implies cash is going out and hence we credit cash account.

The balance payment after the cash down payment is promised to be made in future due to which a liability is being incurred. Thus the Note Payable account shall be credited to recognize the liability incurred. An increase in liability is recorded by crediting the liability account.

The journal entry shall be

Particulars	Debit Amount	Credit Amount
Building    a/c   Dr.	$ XXXX
To Cash a/c		$ XXXX
To Note Payable    a/c		$ XXXX

Thus the solution is Option D. credit to Cash and a credit to Note Payable

The other options are incorrect due to the following reasons:

A. debit to Cash and a credit to Buildings :

Buildings account cannot be credited as it is an asset account. An increase in asset is recorded by debiting the asset account. Cash down payment implies cash is going out and hence we credit cash account. Thus the cash account cannot be debited.

B.debit to Cash and a debit to Note Payable :

Note Payable account cannot be debited here as we are recognizing a liability. An increase in liability is recorded by crediting the liability account. Cash down payment implies cash is going out and hence we credit cash account.

C.debit to Note Payable and a credit to Cash :

Note Payable account cannot be debited here as we are recognizing a liability. Hence, the liability account shall be credited.