When should purchase invoices be classified as liabilities?

When should purchase invoices be classified as liabilities?

• A. When the invoice is created
• B. When goods are received after inventory count
• C. When goods are received before inventory count
• D. When payment is made

Answer: (C)

The classification of purchase invoices as liabilities is based on the timing of the recognition of the obligation to pay for the goods or services received. When goods are received before the inventory count, the company has an obligation to pay for those goods, which creates a liability. This means that at the point of receipt, the entity recognizes that it owes money to the supplier, even if the actual inventory count has not yet been performed to detail the nature of the stock. This principle reflects the accrual basis of accounting, which stipulates that expenses and related liabilities should be recognized when the goods or services are received, rather than when payment is made or when documentation is created. Therefore, once the goods are delivered, the company should classify the amount of the purchase invoice as a liability in its financial records, correctly reflecting its financial obligations in the accounting period. The timing of other options, such as the creation of the invoice or payment made, does not meet the condition for recognizing a liability because the obligation only arises upon receipt of the goods. Thus, recognizing liabilities must align with the moment the company becomes obligated to pay for items received.

The classification of purchase invoices as liabilities is based on the timing of the recognition of the obligation to pay for the goods or services received. When goods are received before the inventory count, the company has an obligation to pay for those goods, which creates a liability. This means that at the point of receipt, the entity recognizes that it owes money to the supplier, even if the actual inventory count has not yet been performed to detail the nature of the stock.

This principle reflects the accrual basis of accounting, which stipulates that expenses and related liabilities should be recognized when the goods or services are received, rather than when payment is made or when documentation is created. Therefore, once the goods are delivered, the company should classify the amount of the purchase invoice as a liability in its financial records, correctly reflecting its financial obligations in the accounting period.

The timing of other options, such as the creation of the invoice or payment made, does not meet the condition for recognizing a liability because the obligation only arises upon receipt of the goods. Thus, recognizing liabilities must align with the moment the company becomes obligated to pay for items received.