Chapter 2, Problem 1MCQ

Amalia Company received its utility bill for the current period of $700 and immediately paid it. Its journal entry to record this transaction includes a

1. a. Credit to Utility Expense for $700.
2. b. Debit to Utility Expense for $700.
3. c. Debit to Accounts Payable for $700.
4. d. Debit to Cash for $700.
5. e. Credit to Common Stock for $700.

To determine

Identify the correct option for the given transaction.

Answer to Problem 1MCQ

b. Debit to utility expenses for $700.

Explanation of Solution

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Prepare a journal entry to record the payment incurred on utility expenses for the current period as follows:

Date	Account Title and Explanation	Post Ref	Debit ($)	Credit ($)
	Utility expenses		700
	Cash			700
	(To record the payment incurred on utility expenses.)

Table (1)

• A Utility expense is an expense account and it is increased by $700. Expenses are the component of stockholder’s Equity and it decreases the value of equity. Therefore, debit utility expenses account with $700.
• Cash is an asset, and it is decreased by $700. Therefore, credit cash with $700.

From the above explanation, it is clear that Option (a), (c), (d) and (e) are incorrect and only option (b) is correct.

Conclusion

Therefore, the correct option is Option (b).