A purchasing agent has just signed a two-year purchase commitment with a major supplier. He has brought the contract to the bookkeeper and told her to record a liability for the obligation the firm has committed to for the next two years. The bookkeeper comes to you, the chief accountant, for advice on how to record this item.
Instructions
Explain to the bookkeeper why no entry is necessary and under what circumstances a commitment would be recognized.

Question

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The Answer of A purchasing agent has just signed a two-year purchase commitment with a major supplier. He has brought the contract to the bookkeeper and told her to record a liability for the obligation the firm has committed to for the next two years. The bookkeeper comes to you, the chief accountant, for advice on how to record this item.
Instructions
Explain to the bookkeeper why no entry is necessary and under what circumstances a commitment would be recognized.

A Purchasing Agent Has Just Signed a Two-Year Purchase Commitment