Question

Determine the financial statement effects of Accounts Payable Transactions, when ABC Company has the following items:

a. Purchases $2,500 of inventory on credit.

b. Sells inventory for $3,300 on credit.

c. Records $2,520 cost of sales for transaction b.

d. Receives $3,300 cash towards accounts receivable.

e. Pays $2,520 cash to settle accounts payable.

What is the ending balance of Accounts Payable after the above transactions?

Answer 1

• All working forms part of the answer
• Accounts payable’s balance:

>increase by the amount of purchases on account,
>decreases by the amount of Cash paid, Purchase returns.

• Working for calculating Balance

Transactions		Transaction amount	Accounts Payable balance - Credit (Debit)
a.	Purchase Inventory on account	$                                     2,500.00	$                     2,500.00
b.	Sells inventory	[do not affect accounts payable balance, it affects Accounts receivables]	$                     2,500.00
c.	Records Cost of Sales	[do not affect accounts payable balance, it affects Accounts receivables]	$                     2,500.00
d.	Receives Cash	[do not affect accounts payable balance, it affects Accounts receivables]	$                     2,500.00
e.	Pays Cash to Accounts Payable	$                                   (2,520.00)	$                        (20.00)

• Note: No beginning balance was made available.
• Correct Answer: Ending balance of Accounts payable after above transaction = $ 20 – Debit Balance.