The debt created by a business when it makes a purchase on account is referred to as an
A) account payable
B) account receivable
C) asset
D) prepaid expense

Question

Quizplus · Accepted Answer

When a business makes a purchase on account, it is essentially borrowing money from the supplier. This creates a liability for the business, known as an accounts payable. Therefore, the correct choice is A. Accounts receivable is the amount owed to a company by its customers for goods or services provided on credit. Asset is a resource of economic value owned by a company or an individual. Prepaid expenses are future expenses that a company has already paid for but has not used yet.

The Debt Created by a Business When It Makes a Purchase