Which accounts are affected when purchasing inventory on credit?

Which accounts are affected when purchasing inventory on credit?

• A. Assets (inventory) and equity (retained earnings)
• B. Assets (inventory) and liabilities (accounts payable)
• C. Assets (cash) and liabilities (accounts payable)
• D. Assets (cash) and equity (retained earnings)

Answer: (B)

When you buy inventory on credit, you’re increasing what you own (inventory) and you’re also creating what you owe (accounts payable). This follows the double-entry rule: every transaction has a debit on one side and a credit on the other. You would record a debit to Inventory, because assets rise with a debit, and a credit to Accounts Payable, because liabilities rise with a credit. Cash isn’t involved at this moment since payment isn’t made yet, so cash would not change. Equity isn’t affected immediately; it would only be affected later when the inventory is sold and its cost hits net income, which then flows into retained earnings.

When you buy inventory on credit, you’re increasing what you own (inventory) and you’re also creating what you owe (accounts payable). This follows the double-entry rule: every transaction has a debit on one side and a credit on the other. You would record a debit to Inventory, because assets rise with a debit, and a credit to Accounts Payable, because liabilities rise with a credit. Cash isn’t involved at this moment since payment isn’t made yet, so cash would not change. Equity isn’t affected immediately; it would only be affected later when the inventory is sold and its cost hits net income, which then flows into retained earnings.