Question

On 1/1, Student Union Corporation purchased a building for $100,000 by signing a 10-year note payable. This transaction would be recorded in the journal entry as a: O Debit to Notes Receivable and a credit to Building O Debit to Building and a credit to Notes Receivable O Debit to Building and a credit to Notes Payable O Debit to Building and a credit to Cash Debit to Cash and a credit to Notes Payable O Debit to Notes Payable and a credit to Building

Answer 1

The correct answer is - Debit to Building and Credit to Notes Payable

1. The reason for debiting the Building

a) The building is an asset. Debit the asset when it increases.

b) Or in other words 'Building' is a real account. As per the rule of real account, 'debit what comes in and credit goes out'. Since we purchase the building it has to be debited.

2. The reason for crediting the Notes Payable

a) The notes payable is our liability. Credit the liability when it increases

b) Or in other words 'Notes payable' is a personal account. As per the rule of the personal accounts, 'debit the giver and credit the receiver'. Hence we have to Credit the 'notes payable'.