From the course: Accounting Foundations: Bookkeeping

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Buying supplies and inventory

Buying supplies and inventory

From the course: Accounting Foundations: Bookkeeping

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Buying supplies and inventory

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- [Instructor] You're 18 again, and you want to work outdoors and set your own schedule. So let's start our own landscaping business. Next, you drive to the local lawn and garden store and purchase a lawnmower and a gas can for $250. Instead of paying for the mower with cash, you open a charge account, which will allow you to pay for the mower in 30 days with no interest charge. Beyond this 30 day grace period an interest charge is going to apply. The journal entry to record this purchase shown here. We increase our asset, equipment, and assets as we know, are increased with debits. We also increase our liability, accounts payable. And we know that liabilities increase with credits. Thus, debits equal credits. And as a result, we know that the accounting equation is going to balance. The accounting equation you can see here. Now, when you eventually pay for the mower, cash will be reduced and the liability, accounts payable, will also be reduced, thus keeping the equation in balance…

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