Question

Aquatic Supplies, Inc. purchases $2000 of supplies on account. Under the accrual basis of accounting, not entry is made until the amount is paid.

A)True
B)False

Answer 1

The claim is false; under the accrual basis of accounting, expenses are recorded when incurred, not when paid, so an entry should be made at the time of purchase.

Step-by-step explanation:

The statement "Under the accrual basis of accounting, no entry is made until the amount is paid" is false. In accrual basis accounting, transactions are recorded when they are incurred, not when cash is exchanged. Therefore, when Aquatic Supplies, Inc. purchases supplies on account, an entry should be made at the time of purchase to record the expense and the corresponding liability.

Here's how the journal entry would look:

• Debit Supplies Expense (or Supplies Inventory if the items are to be used or sold later)
• Credit Accounts Payable

This entry increases the company's supplies expense or inventory and also increases its accounts payable, reflecting the company's obligation to pay for the supplies in the future.