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

Question

Quizplus · Accepted Answer

When a business makes a purchase on account, it means they have bought goods or services on credit and owe payment to the supplier. Therefore, the debt created is known as an account payable. A is incorrect because an account receivable is created when the company sells its goods or services and is owed payment by the customer. B is incorrect because revenue refers to the inflow of money from sales or services provided by the business. C is incorrect because prepaid expense refers to payments made in advance for goods or services that will be received in the future.

The Debt Created by a Business When It Makes a Purchase