Question

Gadgets, Inc. purchased equipment for resale on account for $32,000. Which option describes the correct way to record the transaction?

Select one:

a. increase (debit) equipment and credit (increase) accounts payable

b. increase (debit) equipment and decrease (credit) cash

c. increase (debit) inventory and increase (credit) accounts payable

d. increase (debit) inventory and credit (decrease) cash

Answer 1

When the equipment is purchaed for resale, there is an increase in the inventory. On the other hand, since the equipment is purchased on account this means that the amount would be paid later and hence thereis an increas ein the accounts payable

Hence, an increase in the inventory would result in debit in inventory and an increase in accounts payable would lead to a credit to payables.

Hence the correct answer is :

c. increase (debit) inventory and increase (credit) accounts payable