NOCTI Accounting Foundations Practice Test

What is the journal entry for a purchase on credit?

Debit Cash; Credit Inventory. Debit Inventory (or Purchases); Credit Accounts Payable. Debit Sales Revenue; Credit Accounts Receivable. Debit Accounts Payable; Credit Cash.

Correct Answer:

Debit Inventory (or Purchases); Credit Accounts Payable.

Explanation:

When you purchase on credit, you’re gaining an asset (inventory) and creating a liability (amount you owe). So you increase the asset with a debit and recognize the obligation with a credit. The typical entry is to debit Inventory (or Purchases under a periodic system) and credit Accounts Payable. Cash isn’t involved at this point because no money is paid yet. The other options describe paying cash, recognizing revenue, or paying off a liability, none of which reflect recording a purchase on credit.

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