July 1 – Started business with #10,500
July 31- Paid Agromachinex #6,000 owing them
A. debt capital and credit cash
B. credit cash and debit bank
C. debit cash and credit capital
D. debit purchases and credit cash
Correct Answer:
Option D – debit purchases and credit cash
Explanation
Starting a business with 10500 means the business owner must have bought good for resale with that amount of money. Therefore we will debit purchase/stock account and credit cash account
Note; capital (cash in this case) is the money used in started a business
Purchases in accounting are goods bought for resale.
