What is credited when equipment is purchased on account?

When equipment is purchased on account, the correct entry involves crediting the creditor’s account. This reflects the obligation to pay an external entity (the creditor) for the equipment purchased on credit.

When an asset like equipment is acquired but not immediately paid for, it signifies an increase in the organization's assets (the equipment) and simultaneously creates a liability (the amount owed to the creditor). Creditors have a claim on the entity's resources until the debt is settled. Thus, increasing the liability necessitates a credit to the creditor’s account in the accounting records.

While the purchases account may reflect expenses related to acquiring certain goods, it does not specifically pertain to the situation where the equipment is procured on account. The cash account would not be credited since no cash is being disbursed at that moment. The equipment account, on the other hand, is debited to show the increase in assets, but does not get credited when recording a purchase on account. Therefore, crediting the creditor's account accurately represents the transaction's nature—incurring a liability.