Question

Adidea Corp. regularly buys merchandise from vendors. It just purchased 1,000 units on credit from one of its vendors. How will the company record this transaction?

The company will record the purchase as a debit to the inventory account and a credit to the ________ account.

Answer 1

The purchase of merchandise by Adidea Corp. is recorded as a debit to Inventory and a credit to Accounts Payable, reflecting the increase in assets and liabilities.

Step-by-step explanation:

When Adidea Corp. purchases 1,000 units of merchandise on credit from a vendor, the accounting transaction should be recorded in the company's books with a debit to the Inventory account and a credit to the Accounts Payable account. This is an application of the double-entry accounting system, where every transaction affects at least two accounts. The Inventory account represents the company's assets and increases with a debit, reflecting the added value from the newly purchased goods. Conversely, the Accounts Payable account reflects the company's liabilities and increases with a credit because it indicates the amount the company owes to the vendor.