Question

For the purchase of an asset by cash or cheque, what is the correct accounting treatment?

Options

• Asset account is debited and Cash/Bank account is credited

• Asset account is credited and Cash/Bank account is debited

• Cash/Bank account is debited and Asset account is credited

• Profit & Loss account is debited and Asset account is credited

Answer 1

Asset account is debited and Cash/Bank account is credited

Explanation:

When an asset is purchased for cash or by cheque, the asset account is increased (debited) and the Cash or Bank account is reduced (credited). This shows that the business has gained an asset and paid out cash or cheque for it.