Chapter 5: Accounts Payable

Question 1

Credit Transaction

Answer 1

A transaction that involves an exchange of goods or services on one date, followed by the exchange of cash at a later date

Question 2

Credit Purchases

Answer 2

A transaction that involves buying inventory on credit, with the exchange of the inventory on one date, followed by the exchange of cash at a later date

Question 3

Accounts Payable

Answer 3

A supplier from whom goods (usually inventory) or services have been purchased on credit, and the amount still owing for those purchases

Question 4

Purchase Invoice

Answer 4

A source document used to verify a credit purchase of inventory or other items

Question 5

Credit Terms

Answer 5

Information that details how many days a business has to pay for a credit transaction, and any applicable settlement discount

Question 6

Purchase Return

Answer 6

The return to a supplier (Account Payable) of inventory bought on credit

Question 7

Credit Note

Answer 7

A source document used to verify the return of inventory

Question 8

Settlement Discount

Answer 8

A reduction in the amount paid by a credit customer in return for early repayment

Question 9

Discount Revenue

Answer 9

A revenue in the form of a decrease in liabilities (AP) and an increase in owner’s equity, earned when Accounts Payable are paid early and a settlement discount is given by the supplier

Question 10

Statement of Account

Answer 10

A summary of the transactions a business has had with a particular Account Payable (or Account Receivable) over a certain period of time (usually a month)

Question 11

Accounts Payable Turnover

Answer 11

The average number of days it takes for a business to pay its Accounts Payable

Question 12

Liquidity

Answer 12

The ability of a business to meet its short-term debts as they fall due