The City of Upper Falls accounts for its inventory using the purchases method. During the year the city bought $500,000 of supplies, for which it owed $100,000 at year-end. The city will pay for the supplies from available expendable financial resources. The entry that should be recorded in the city's general fund is
A) Debit Expenditures $500,000; Credit Cash $400,000 and Accounts payable $100,000.
B) Debit Expenditures $400,000; Credit Cash $400,000.
C) Debit Supplies inventory $500,000; Credit Cash $400,000 and Accounts payable $100,000.
D) Debit Supplies inventory $400,000; Credit Cash $400,000.

Question

Quizplus · Accepted Answer

The correct entry reflects the total amount of supplies purchased ($500,000) as expenditures, recognizing the part paid in cash ($400,000) and the amount still owed ($100,000) at year-end. This approach aligns with the purchases method, where the focus is on the financial resources used or obligated during the period.

The City of Upper Falls Accounts for Its Inventory Using