When caskets are purchased on credit, which account should be credited in the bookkeeping entry?

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

Answer: (B)

When you buy caskets on credit you receive an asset now but owe money later. In double-entry bookkeeping you show this by debiting the asset account (Inventory or Purchases, depending on your system) to reflect the new stock, and credit the liability account to show the obligation to pay. The liability you owe to suppliers is recorded in Accounts payable, which is why that is the correct credit. Cash isn’t credited at this moment because payment hasn’t been made yet; it would be credited only when you actually pay the bill. The debit would go to Inventory (in a perpetual system) or Purchases (in a periodic system), but the credit must be to Accounts payable to reflect the outstanding obligation.