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Effect of Inventory Purchase and Accrual Entry

1. Please select the right answer and explain in a few words why:

In the buyer's records, the purchase of merchandise on account would:

a. Increase assets and increase liabilities.
b. Increase liabilities and increase paid-in capital.
c. Increase assets and increase expenses.
d. Have no effect on total assets.

2. A journal entry recording an accrual:

a.Results in a better matching of revenues and expenses.
b. Will most likely include a debit to a liability account.
c. Will involve a debit or credit to cash.
d. Will affect balance sheet accounts only.

Solution Preview

1. In the buyer's records, the purchase of merchandise on account would increase the inventory account (an asset) and increase accounts payable (a liability). Therefore, answer a is correct is answer d is wrong. Paid-in capital is affected only from sale of company stock, so answer ...

Solution Summary

This solution discusses the effect of purchasing merchandise inventory on account on the buyer's books and the effect of making an accrual entry on the company's books.

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