The debt created by a business when it makes a purchase on account is a(n):
A) revenue.
B) prepaid expense.
C) account receivable.
D) account payable.

Question

Quizplus · Accepted Answer

When a business makes a purchase on account, it means it is buying goods or services on credit and will have to pay for them at a future date. The debt created in this situation is called an account payable, as it represents money that the business owes to its suppliers or creditors. Therefore, the correct answer is D. The other options, revenue and prepaid expense, represent sources of income and advance payments, respectively, and do not apply to this scenario. Account receivable would be the term used from the other party's perspective - money owed to them by the business.

The Debt Created by a Business When It Makes a Purchase