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Chapter 11
Payables, provisions and contingent
liabilities
2.1 Cash and credit purchases
If an entity males a purchase for cash, it pays for the goods at the point of sale. The
accounting entries required to record this are:
Debit Purchases/expense
Credit Cash
If the purchase is made on credit the entity will typically pay for goods 30-60 days
after receiving them. Applying the accruals concept, the purchase is recorded when
the goods are delivered. The expense is recorded along with a corresponding
liability that represents the commitment to pay. The liability is referred to as a
‘payable’. The accounting entries required to record this are:
Debit Purchases/expenses
Credit Payables
When the entity subsequently makes payment, the obligation is cleared with the
following accounting entries.
Debit Payables
Credit Cash
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