Question

Which of the following journal entries would be required to recognize the cash purchase of $500 of merchandise inventory?

A. Cash debited $500
Inventory credited $500
B. Cost of Goods Sold debited $500
Cash credited $500
C. Inventory debited $500
Cash credited $500
D. Cost of Goods Sold debited $500
Inventory credited $500

Answer 1

The correct entry for a cash purchase of inventory is debiting Inventory and crediting Cash for $500, which reflects an increase in inventory assets and a decrease in cash assets.

Step-by-step explanation:

The correct journal entry to recognize the cash purchase of $500 of merchandise inventory is:
C. Inventory debited $500 Cash credited $500

When a company buys inventory with cash, it increases the inventory account, which is an asset, and decreases cash, another asset. Therefore, you need to debit the inventory account to show an increase in assets and credit the cash account to show a decrease in assets as per the double-entry accounting system.