Chapter 8, Problem 1.1SRQ

What is the name of the account used to record purchases of merchandise inventory?

To determine

Identify the name of the account used to record purchases of merchandise inventory.

Explanation of Solution

Merchandise Purchases:

The goods purchased by the business for the purpose of reselling, is called merchandise purchases. The business purchases the merchandise inventory for credit as well as for cash. The purchasing department of the business generally performs the functions of merchandise purchases.

The account which records the purchases of merchandise inventory is named as purchases account. The purchases account records the costs related to the purchases of the merchandise for resale. The purchases account is classified as temporary expense account.

The amount incurred in purchasing merchandise inventory is recorded in debit side of the purchases account. The normal balance of the purchases account is debit. It can be inferred that recording debit amounts increases the purchase account and the recording credit amounts decreases the balance.