The correct answer is: D. Compound entry
A compound entry is a journal entry in which two or more accounts are debited or credited. This is in contrast to a simple entry, in which only one account is debited or credited.
Compound entries are used when a transaction affects two or more accounts in different ways. For example, if a company purchases equipment on credit, the journal entry would debit the Equipment account and credit the Accounts Payable account.
Compound entries can also be used to record adjustments to accounts. For example, if a company discovers that it has overstated its inventory, it would make a compound entry to debit the Inventory account and credit the Cost of Goods Sold account.
Here is an example of a compound entry:
- Debit: Equipment $10,000
- Credit: Accounts Payable $10,000
This entry records the purchase of equipment on credit. The Equipment account is debited because the company now owns the equipment. The Accounts Payable account is credited because the company owes the supplier money for the equipment.
Here is an example of a compound entry that records an adjustment to inventory:
- Debit: Inventory $1,000
- Credit: Cost of Goods Sold $1,000
This entry records the discovery that the company has overstated its inventory. The Inventory account is debited because the company now has less inventory than it thought. The Cost of Goods Sold account is credited because the company has to reduce its cost of goods sold for the period.
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