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


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.

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