A business has received supplies from a vendor but has not made a payment. Which liability does this transaction create?

Rationale

Accounts payable is the liability created by receiving supplies without making a payment.

When a business receives supplies from a vendor but has not yet made a payment, it incurs an obligation to pay the vendor in the future, which is recorded as accounts payable. This liability reflects the company's obligation to settle the amount owed for the supplies acquired.

A (Accounts payable) CORRECT

This choice is correct because accounts payable represents the amount a business owes to its suppliers for goods and services received that have not yet been paid for. It indicates a future payment obligation, thereby accurately reflecting the liability created when supplies are received.

B (Notes receivable) YOUR ANSWER

Notes receivable refers to amounts owed to the business by its customers or other debtors, typically documented through formal written promises to pay. This option does not apply to the scenario where a business has received supplies but has not yet made a payment to a supplier, as it indicates an asset rather than a liability.

C (Prepaid expenses) YOUR ANSWER

Prepaid expenses are payments made in advance for services or goods to be received in the future. This option is incorrect because the scenario describes receiving supplies without payment, which creates a liability rather than a prepaid asset.

D (Retained earnings) YOUR ANSWER

Retained earnings represent the accumulated net income of a business that has not been distributed to shareholders as dividends. This choice is not relevant here, as it does not pertain to liabilities created by receiving supplies; rather, it reflects the company's equity position.

Conclusion

In summary, when a business receives supplies from a vendor without making a payment, it creates a liability recorded as accounts payable. This transaction accurately captures the obligation to pay for the supplies in the future, distinguishing it from other financial concepts such as notes receivable, prepaid expenses, or retained earnings, which do not apply in this context.

A business has received supplies from a vendor but has not made a payment. Which liability does this transaction create?

Accounts payable is the liability created by receiving supplies without making a payment.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test