Chapter 5 - Accounts Payable Flashcards
Accounts Payable Definition
A supplier from whom goods (usually inventory) or services have been purchased on credit, and the amount still owing for those purchases (also called a ‘creditors’)
Which two AA’s allow for the recognition of Credit Purchases?
The Going Concern Assumption and The Accrual Basis Assumption
How does the Going Concern Assumption help with Credit Purchases?
It allows the business to record a credit purchase, and the amount that still need to be paid, because it assumes the life of the business is continuous.
How does the Accrual Basis Assumption help with Credit Purchases?
States that the elements of the reports are recognised when they satisfy the definitions and recognition criteria, regardless of whether cash has been exchanged or not.
Which two Elements support the Accrual Basis Assumption in relation to Credit Purchases?
Inventory that can be sold, which meets the definition of an asset
An amount owed to Accounts Payable, which meets the definition of a liability
What Source Document is used to verify a Credit Purchase of Inventory or other items?
Purchase Invoice
What are credit terms and how are they represented in source documents?
Information that details how many days a business has to pay for a credit transaction and any applicable discount. Represented as, 5/7, n/60.
What are the GJ entries for a credit purchase
Inventory DR
GST clearing DR
AP - Name CR
What are the GJ entries to record cash payment to account payable
AP - Name DR
Bank CR
What source document verifies the return of inventory?
Credit Note
Who prepares a credit note for a purchase return?
The credit note is always prepared by the seller or business who originally supplied the inventory
What are the entries for a purchase return?
AP - Name DR
Inventory CR
GST clearing CR
‘Purchase Return to Marcon Tools of -Quantity, Type of Inventory - (Cr. Note)’
