Purchase Solution

Effect of Inventory Purchase and Accrual Entry

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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.

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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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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 ...

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