On June 1st, Green Pea, Inc. purchased $1,200 worth ofsupplies on account. How d

Question

On June 1st, Green Pea, Inc. purchased $1,200 worth ofsupplies on account. How does this transaction affect Green Pea'saccounts?
a. Increase supplies and accounts payable by $1,200 b. Increase supplies and decrease cash by $1,200 c. Increase supplies and decrease accounts payable by$1,200 d. No effect since cash has not been paid On June 1st, Green Pea, Inc. purchased $1,200 worth ofsupplies on account. How does this transaction affect Green Pea'saccounts?
a. Increase supplies and accounts payable by $1,200 b. Increase supplies and decrease cash by $1,200 c. Increase supplies and decrease accounts payable by$1,200 d. No effect since cash has not been paid

Explanation / Answer

Answer (a.) Journal entry Supplies.......................1200      Accounts Payable......1200 Since the company is buying supplies, the supplies are increasing(debit - because it is an asset). And since the company bought thesupplies on account, they owe money, making their accounts payableincrease also (credit-liabilities).

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