The following account balances are taken from the December 31, 2015, financial statements of ABZ Advertising Company.The company uses accrual basis accounting.

The following activities occurred in 2016:
1.Performed advertising services on account, $55,000.
2.Received cash payments on account, $10,400.
3.Received deposits from customers for advertising services to be performed in 2017, $2,500.
4.Made payments to suppliers on account, $5,000.
5.Incurred $45,000 of operating expenses; $39,000 was paid in cash and $6,000 was on account and unpaid as of the end of the year.
-Use the information above to answer the following question.Which of the following is the journal entry that will be used to record activity #4?
A) Debit Operating Expense and credit Cash for $5,000
B) Debit Accounts Payable and credit Cash for $5,000
C) Debit Accounts Payable and credit Operating Expense for $5,000
D) Debit Cash and credit Accounts Payable for $5,000

Question

The following account balances are taken from the December 31, 2015, financial statements of ABZ Advertising Company.The company uses accrual basis accounting.
  
The following activities occurred in 2016:
1.Performed advertising services on account, $55,000.
2.Received cash payments on account, $10,400.
3.Received deposits from customers for advertising services to be performed in 2017, $2,500.
4.Made payments to suppliers on account, $5,000.
5.Incurred $45,000 of operating expenses; $39,000 was paid in cash and $6,000 was on account and unpaid as of the end of the year.
-Use the information above to answer the following question.Which of the following is the journal entry that will be used to record activity #4?
A) Debit Operating Expense and credit Cash for $5,000 
B) Debit Accounts Payable and credit Cash for $5,000 
C) Debit Accounts Payable and credit Operating Expense for $5,000 
D) Debit Cash and credit Accounts Payable for $5,000

Quizplus · Accepted Answer

Activity #4 involves making payments to suppliers on account, which means the company is reducing its liability to suppliers. The appropriate journal entry is to debit Accounts Payable (to reduce the liability) and credit Cash (to record the cash outflow). Therefore, the correct answer is option B - Debit Accounts Payable and credit Cash for $5,000.

The Following Account Balances Are Taken from the December 31