Question 49

Accounts payable is the liability created by receiving supplies without making a payment.

When a business receives supplies from a vendor but has not yet made a payment, it creates an obligation to pay the vendor in the future. This obligation is recorded as accounts payable on the balance sheet.

A) Accounts payable

This option is correct because accounts payable refers to the amount a company owes to suppliers for items or services purchased on credit. In this scenario, since the supplies have been received but not paid for, a liability is recorded under accounts payable.

B) Notes receivable

This option is incorrect because notes receivable represent amounts owed to a business by its customers or other parties, typically documented by a formal promissory note. In this case, the company is not receiving money but rather owes money to the vendor.

C) Prepaid expenses

This option is incorrect as prepaid expenses refer to payments made in advance for goods or services to be received in the future. Since the supplies have already been received without payment, there is no prepaid expense involved in this transaction.

D) Retained earnings

This option is incorrect because retained earnings represent the cumulative amount of net income that has been retained in the business, rather than distributed to shareholders. The transaction does not affect retained earnings directly; rather, it creates a liability.

Conclusion

Accounts payable is the appropriate designation for the liability created in this transaction, as it accurately reflects the obligation to pay the vendor for the supplies received. All other options do not apply to this scenario, as they either describe assets or equity rather than a liability arising from a purchase on credit.