Give an example of a journal entry for buying goods on credit.

• A. Dr Purchases 500; Cr Trade Creditors 500.
• B. Dr Trade Creditors 500; Cr Purchases 500.
• C. Dr Bank 500; Cr Purchases 500.
• D. Dr Purchases 500; Cr Bank 500.

Answer: (A)

When goods are bought on credit, you record an asset (or expense) increase and a corresponding liability increase. The action is to debit the Purchases account (which shows the cost of goods acquired) and credit the Trade Creditors account (the amount you owe to suppliers). This reflects that you’ve obtained goods without paying cash yet, so your purchases rise and your liability to suppliers also rises.

For the given amount, the correct entry is: Dr Purchases 500; Cr Trade Creditors 500. If the purchase had been paid immediately, you’d instead debit Purchases 500 and credit Bank 500. Entries that debit Trade Creditors or debit Bank while crediting Purchases would not accurately show a new liability or an unused cash payment.