A purchase of caskets on account should be recorded as a credit to which account?

• A. Cash
• B. Inventory
• C. Accounts payable
• D. Revenue

Answer: (C)

Buying inventory on account creates a liability and increases assets. In double-entry accounting, assets rise with a debit and liabilities rise with a credit. Since you’re promising to pay the supplier later, you credit Accounts Payable to record that obligation, while you would debit Inventory to reflect the asset you’ve acquired. Cash would be affected only if you paid at the time of purchase, in which case Cash would be credited and Accounts Payable debited. Revenue is not involved in a purchase transaction; it would be affected only when you sell goods.