Question

USING THE ACCRUAL BASIS, WHAT IS THE ENTRY TO RECORD AN INVOICE FOR A PURCHASE OF A $20,000 BOILER (CAPITAL IMPROVEMENT)?

Answer 1

Answer:

The accrual method does apply to the purchase of equipment (as well as applying to revenues and expenses).

To illustrate, let's assume that on December 29 a company ordered and received some equipment to be used in its operations. The payment for the equipment is to be made on February 10. Under the accrual method, on December 29 the company should debit the asset account Equipment and credit the liability account Accounts Payable. (When the supplier or vendor is paid on February 10, the company's asset Cash will be credited and its liability account Accounts Payable will be debited.)

Journal Entries

Particulars	Amount	Amount
By Purchase of Boiler A/c Dr	20,000
To Account Payable A/c Cr		20,000
(Being Boiler purchased)

Particulars	Amount	Amount
By Cash A/c Dr	20,000
To Account Payable A/c Cr		20,000
(Being Payment made for the Boiler)