Recording Accounts Payable - Financial Accounting

The video tutorial covers the basics of current liabilities, focusing on accounts payable and unearned revenues. It explains how to record purchases on credit and manage unearned revenues when cash is received upfront. The tutorial also delves into sales tax, illustrating how businesses collect and remit sales tax to the state. An example involving Romeo and Company demonstrates the process of handling sales tax payable, emphasizing that sales tax is not an expense but a liability to be paid to the taxing authority.

What is the correct accounting entry when a company purchases supplies on credit?

• Debit Accounts Payable, Credit Supplies

• Debit Supplies, Credit Accounts Payable

• Debit Cash, Credit Supplies

• Debit Supplies, Credit Cash

How should a company record cash received upfront for services not yet provided?

• Debit Cash, Credit Service Revenue

• Debit Service Revenue, Credit Cash

• Debit Cash, Credit Unearned Revenue

• Debit Unearned Revenue, Credit Cash

What is the role of a business in handling sales tax collected from customers?

• The business keeps the sales tax as revenue

• The business uses the sales tax to pay its expenses

• The business holds the sales tax for the taxing authority

• The business refunds the sales tax to customers

In the example provided, what is the total cash received by Romeo and Company from a sale including sales tax?

• $535

• $300

• $500

• $35

Why is sales tax not considered an expense for the business?

• Because it is refunded to customers

• Because it is not the business's money

• Because it is used to pay business expenses

• Because it is recorded as revenue