What Is the Correct Debit or Credit for the Following

question 79

Multiple Choice

What is the correct debit or credit for the following scenario: A contract was issued for the major part of work to be done by a private contractor for the amount of $1,200,000?

• A) Debit: Reserve for encumbrances
• B) Debit: Construction expenditures
• C) Credit: Cash
• D) Debit: Encumbrances

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Definitions:

Rent Expense

The cost incurred by a business to utilize property or equipment for operations, which is recorded as an expense on the income statement.

Depreciation Expense

The portion of the cost of a fixed asset that is recorded as an expense each year of its useful life.

Working Capital

Current assets minus current liabilities, indicating the liquidity available to a business for day-to-day operations.

Closing Entry

An accounting transaction recorded at the end of an accounting period to transfer the balances of temporary accounts to permanent ones.