Lightning Motors purchased electric car batteries worth $75,000 on credit. On the balance sheet, this purchase will be shown as a(n)Multiple Choiceaccount receivable.account payable.accrued revenue.deferred revenue.
Question
Lightning Motors purchased electric car batteries worth $75,000 on credit. On the balance sheet, this purchase will be shown as a(n)Multiple Choiceaccount receivable.account payable.accrued revenue.deferred revenue.
Solution
The purchase of electric car batteries worth $75,000 on credit by Lightning Motors will be shown as an account payable on the balance sheet.
Here's why:
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An account payable is a liability to a creditor, carried on open account, usually for purchases of goods and services.
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When a company purchases something on credit, this creates a promise to pay the supplier in the future. The company is essentially extending its accounts payable.
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In this case, Lightning Motors has purchased batteries on credit. This means they have received the batteries now, but will pay for them at a later date.
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Therefore, this transaction increases the company's accounts payable, which is a liability on the balance sheet.
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