When a purchase order is created, which account is typically debited in the accounting records?

• A. Cash
• B. Inventory
• C. No account is debited at the time of purchase order creation
• D. Accounts Payable

Answer: (C)

Verified step by step guidance

1. Understand the nature of a purchase order: A purchase order is a document issued by a buyer to a seller, indicating the items, quantities, and agreed prices for products or services. It is not a financial transaction but rather a commitment to purchase.
2. Recognize the accounting principle: At the time of creating a purchase order, no financial transaction has occurred yet. Therefore, no accounts are debited or credited in the accounting records.
3. Distinguish between a purchase order and an invoice: A purchase order is a preliminary document, while an invoice is issued by the seller after the goods or services are delivered, triggering a financial transaction.
4. Identify when accounts are affected: Accounts such as Inventory, Accounts Payable, or Cash are affected only when the goods or services are received, and the invoice is recorded in the accounting system.
5. Conclude that no account is debited at the time of purchase order creation: The purchase order is simply a commitment and does not impact the accounting records until the transaction is finalized.