What happens to the creditor's account when equipment is purchased on account?

When equipment is purchased on account, the creditor's account is credited to increase it. This is because the purchase of equipment on credit indicates that the business now owes money to the creditor. In accounting, when a liability (such as accounts payable to a creditor) increases, the corresponding account is credited.

In this scenario, when the equipment is acquired, the equipment account (an asset) is debited to reflect the increase in assets. Simultaneously, the accounts payable (the creditor's account) is credited to record the obligation to pay the creditor in the future. This double-entry bookkeeping maintains the accounting equation, where total assets equal total liabilities plus equity.

By crediting the creditor's account, it accurately reflects the increase in outstanding obligations that the business has incurred due to the equipment acquisition. This process helps in maintaining accurate and reliable financial statements.