‘Which of the following is the correct transaction for Debit Land account and Credit Cash account? a. Purchased land from Mr. Ali b. Purchased land for credit c. Purchased good for cash d. Purchased Land for cash’
The Correct Answer and Explanation is:
Correct answer:
d. Purchased Land for cash
Explanation:
In accounting, every transaction follows the double-entry system, where each transaction affects at least two accounts — one is debited and the other is credited.
The Land account is considered a non-current asset account. When a company buys land, it increases its assets, so the Land account is debited. On the other hand, Cash is a current asset, and when cash is paid out, the Cash account is credited because it is decreasing.
Let’s examine each option:
- a. Purchased land from Mr. Ali
This does not clearly state whether the purchase was made using cash or on credit. It is too vague to be selected as the correct answer for a transaction involving a debit to Land and credit to Cash. - b. Purchased land for credit
This transaction means that the land was bought but the payment will be made later. Therefore, the entry would be:- Debit Land (increase in asset)
- Credit Accounts Payable (increase in liability), not Cash.
So this is incorrect.
- c. Purchased goods for cash
This involves inventory or merchandise, not land. In such a case, the Inventory or Purchases account would be debited, and Cash would be credited. This does not involve the Land account, so it is also incorrect. - d. Purchased Land for cash
This clearly indicates that land (a fixed asset) was acquired, and payment was made in cash. The correct accounting entry for this would be:- Debit Land (to record the addition of a fixed asset)
- Credit Cash (to record the decrease in cash)
This matches exactly with what the question is asking.
Hence, the correct answer is d. Purchased Land for cash.
