Which Of The Following Statements Is Accurate Regarding Accounts Payable?

Which Of The Following Statements Is Accurate Regarding Accounts Payable? A. Accounts payable refer to amounts owed to the business by customers who purchased products on credit. B. Accounts payable refer to deposits made by the business into their checking account. C. Accounts payable refer to promises to pay later, which may arise from the purchase of supplies or services. D. Accounts payable are assets.
The correct answer of this multiple choice question (mcq) is C, as Accounts Payable Or Sundry Creditors shows that amount of money which the business promises to pay to suppliers / vendors later for the goods / merchandise / supplies or services purchased on account / credit and it is recorded based on the accounting concept known as Accrual Basis of Accounting. When the business does not pay to vendor immediately but promises to pay later for supplies purchased, then it creates a Current Liability for the business to pay within the specified time period not exceeding the one year. The journal entry to record is to debit supplies account (as a Current Asset) and credit accounts payable account. As the business is purchasing supplies, so these are increasing and coming into the business, so we debit supplies account. Accounts payable is also increasing as the business is liable to pay to vendors for supplies purchased on account, so we credit it according to the Rules of Debit And Credit.

The effect of this entry on Accounting Equation is shown below:

    Assets      =           Liabilities            +  Equity

                                             +Supplies    =    +Accounts Payable

Both sides of the accounting equation are increasing, so the equation remains in balance.

The option B is a wrong choice as this statement represents Accounts Receivable / Sundry Debtors (money owed to the business by customer). It shows the amount owed to business by customers who purchased products or services on account / credit. From the business points of view, it is a Current Asset as the customers did not pay to company for products or services sold on credit.

The option C represents a deposit of cash into checking account of company’ bank account. It shows an increase in bank account (current asset) and a credit to cash account (current asset), which shows a Contra Entry. So, this option is incorrect choice here.

The option D is also not correct statement as these are current liabilities, which are shown on liabilities & equity side on balance sheet, but not assets in accounting.

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