A company buys equipment for $50,000 in cash. Which journal entry records this transaction, and what is the effect on total assets and equity?

• A. Debit Equipment 50,000; Credit Cash 50,000. Total assets increase; equity increases.
• B. Debit Equipment 50,000; Credit Cash 50,000. Total assets remain unchanged; equity is not affected.
• C. Debit Cash 50,000; Credit Equipment 50,000. Total assets unchanged; equity unchanged.
• D. Debit Cash 50,000; Credit Accumulated Depreciation 50,000. Total assets decrease; equity unchanged.

Answer: (B)

When you buy equipment with cash, you’re swapping one asset for another, not creating a new asset or affecting liabilities or equity. You record a debit to Equipment for 50,000 to reflect the new asset and a credit to Cash for 50,000 to show the cash leaving the company. The total assets don’t change, and equity isn’t affected because there’s no revenue, expense, or owner transaction.

So the correct entry is Debit Equipment 50,000; Credit Cash 50,000, with total assets unchanged and equity unchanged. The other possibilities would misstate the flow of cash or misapply depreciation.