Question

The purchase of a supply of markers for three months should be recorded as an increase in ________ and a decrease in ________.

1) revenue, cash
2) expenses, accounts payable
3) assets, liabilities
4) equity, inventory

Answer 1

The purchase of markers should be recorded as an increase in assets and a decrease in cash, or an increase in assets and an increase in accounts payable if bought on credit.

Step-by-step explanation:

The purchase of a supply of markers for three months should be recorded as an increase in assets and a decrease in cash, assuming the markers are paid for immediately. If the markers are purchased on credit, it would be recorded as an increase in assets and an increase in accounts payable. Therefore, the correct option is (3) assets, liabilities, if assuming an instant cash transaction, or if credit was used, it would be more like option (2) expenses, accounts payable reflecting the credit side. However, since the question specifically asks for an increase and a decrease, we consider the immediate payment scenario only. In financial transactions for a business, when supplies such as markers are bought, they are initially considered assets (specifically inventory). Once the supplies are used, the cost of these supplies will then be recorded as an expense, impacting the income statement at that later time. The immediate impact is on the balance sheet with a rise in assets (inventory) and a reduction in assets (cash) or an increase in liabilities (if purchased on credit).