Janfer Book Store purchased a new automobile that cost $10,000, made a down payment of $3,000, and signed a note payable for the balance. The entry to record this transaction is:
Cash 3,000.00
Note Payable7,000.00
Automobile 10,000.00
Cash 3,000.00
Automobile 3,000.00
Automobile 10,000.00
Cash 3,000.00
Janfer, Capital 7,000.00
Automobile 3,000.00
Cash 3,000.00
Automobile 10,000.00
Note Payable 7,000.00
Cash 3,000.00
The correct entry to record this transaction is:
Automobile 10,000.00
Cash 3,000.00
Note Payable 7,000.00
To understand why this entry is correct, let's break it down:
1. The purchase of the automobile for $10,000 is an increase in assets (automobile) and a decrease in assets (cash). So, we debit the automobile account for $10,000 and credit the cash account for $3,000.
2. Since the company made a down payment of $3,000, they still owe $7,000 on the automobile. This amount is recorded as a liability (note payable). So, we credit the note payable account for $7,000.
By following this entry, you will accurately record the purchase of the automobile, the down payment, and the remaining balance.