Question

When a company purchases supplies on account

A. expenses increase.

B. total assets decrease.

C. cash flow from investing activities decreases.

D. liabilities increase.

Answer 1

Purchasing supplies on account increases a company's liabilities because it owes funds for the received supplies.

Step-by-step explanation:

When a company purchases supplies on account, this means that it has received supplies but will pay for them at a later date. This transaction increases the company's liabilities (specifically, its accounts payable) because it now owes money for the supplies it has purchased. Therefore, the correct answer is liabilities increase. This does not immediately affect the company's cash flow from investing activities, nor does it decrease total assets at that moment. However, eventually, the expense will be recorded when the supplies are used, which will impact the company's expenses and assets accordingly.