Question

Suppose that on March 1, 2014 Cardullo's purchased an order of German chocolate from a supplier for $250, but didn't pay cash for the order until March 31, 2014. How would you record this transaction at the time of the purchase?

Answer 1

Answer:

Dr merchandise inventory $250

Cr accounts payable                        $250

Explanation:

The appropriate thing to do on the transaction date would be to recognize that $250 is being owed to the supplier from whom the German chocolate was bought by crediting accounts payable with $250 and debiting merchandise inventory with the same amount.

Upon payment on 31 March 2014,the accounts payable amount is reversed by a way of debit and cash account credited accordingly with the $250 to show an outflow of cash from the business.