A Purchasing Agent Has Just Signed a Two-Year Purchase Commitment

question 2

Essay

A purchasing agent has just signed a two-year purchase commitment with a major supplier. He has brought the contract to the bookkeeper and told her to record a liability for the obligation the firm has committed to for the next two years. The bookkeeper comes to you, the chief accountant, for advice on how to record this item.
Instructions
Explain to the bookkeeper why no entry is necessary and under what circumstances a commitment would be recognized.

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Definitions:

Richard Wright

An African-American author known for his works focusing on race, including the novel "Native Son."

Communist Party

A political party advocating the principles of communism, including the elimination of private property and the promotion of a classless society.

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The highest level of baseball play, involving teams and players who are paid for their performance.

UAW

United Auto Workers, a labor union representing workers in the United States, Canada, and Puerto Rico, primarily in the automotive industry.