For companies that purchase goods on account, the transaction should _______.
A)record purchases and accounts payable upon ordering of the goods
B)record purchases and accounts payable upon the receipt of goods
C)be input into the ledger by the auditor once it has been reviewed
D)overstate equity until the goods are paid for

Question

Quizplus · Accepted Answer

For companies that purchase goods on account, the transaction should be recorded upon the receipt of goods because it is at that point that the company has incurred the liability to pay for the goods received. Recording the transaction at the time of ordering (option A) would overstate the liability, as the company has not yet received the goods. Option C is incorrect because the auditor does not input transactions into the ledger, they only review them. Option D is also incorrect because recording the transaction on account would increase the liability, not equity.

For Companies That Purchase Goods on Account, the Transaction Should