Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

When supplies are purchased on credit, it means that:

An asset, specifically cash, is increased.

A liability, specifically accounts payable, is created.

An expense is immediately recognized and paid in cash.

A liability, specifically notes payable, is created.

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Verified step by step guidance

Understand the nature of the transaction: When supplies are purchased on credit, it means the company acquires supplies without immediately paying cash. This creates an obligation to pay in the future, which is classified as a liability.

Identify the accounts involved: The supplies account (an asset) increases because the company now owns more supplies. Simultaneously, a liability account, specifically accounts payable, is created to reflect the obligation to pay for the supplies later.

Clarify why cash is not involved: Since the purchase is made on credit, cash is not used in the transaction. Therefore, the cash account does not change.

Explain why an expense is not immediately recognized: Supplies are typically recorded as an asset when purchased. An expense is recognized only when the supplies are used in operations, not at the time of purchase.

Distinguish accounts payable from notes payable: Accounts payable is used for short-term obligations arising from purchasing goods or services on credit, while notes payable refers to formal written agreements for loans or other long-term obligations. In this case, accounts payable is the correct liability account.