Question

Profit Inc., a manufacturing firm, has purchased raw materials worth $10,000 on credit from its vendors. The business plans to settle the vendor’s full payment after two months. Under which section of a balance sheet will this amount be recorded as “accounts payable”?

A.
current assets
B.
current liabilities
C.
long-term liabilities
D.
owners’ equity

Answer 1

Profit Inc., a manufacturing firm, has purchased raw materials worth $10,000 on credit from its vendors. The business plans to settle the vendor’s full payment after two months. In a balance sheet this amount be recorded as “accounts payable” is

A.

current assets

Step-by-step explanation:

• Profit Inc., a manufacturing firm, has purchased raw materials worth $10,000 on credit from its vendors. The business plans to settle the vendor’s full payment after two months. In a balance sheet this amount be recorded as “accounts payable” is

• A. current assets

• Current assets shows all the assets of a company that are expected to be sold, consumed, utilized or exhausted through the standard business rules and operations.
• Current assets includes the following entries,
• cash,
• cash equivalents,
• accounts receivable,
• stock inventory,
• marketable securities,
• pre-paid liabilities, and other liquid assets.

Answer 2

Profit Inc., a manufacturing firm, has purchased raw materials worth $10,000 on credit from its vendors. The business plans to settle the vendor’s full payment after two months. Under "current liabilities"section of balance sheet this account will be recorded as "account payable".

Answer: Option (B) is correct

Step-by-step explanation:

Raw material purchased on credit from a vendor is a liability and it is shown under current liabilities in "accounts payable". Since raw material purchased on credit and payment is to be made after two months.

Payment due gives rise to liability. Now current liability is a company's short term obligations that are to be paid back within a year. Here the firm will have to make payment within two months to the vendor.