Joomla TemplatesBest Web HostingBest Joomla Hosting
Home Accounts payable

Articles

Accounts payable

Accounts payable refers to debts owed to suppliers of goods or services. These debts are the unpaid invoices normally kept in a single file and will have been recorded in the purchases journal and posted to their respective accounts in the purchases ledger. When a new batch of goods is received on credit, the invoice for it is added to those in the file, and an invoice is removed from this file when it is sent for payment.

Accounts payable exists because suppliers allow credit periods for payment of their goods or services. The credit periods vary. They may be one or two weeks, 10 days, 30 days or even 90 days. There may also be no credit period and the bills are expected to be paid immediately.

Paying close attention to the credit periods is necessary so that debts can be settled when due at the end of the credit period. Timely payment of bills is important as it can affect the credit rating of a firm and its business relationships with other businesses.

As will be seen from the following examples, the expenses accounts are debited while the accounts payable account is credited. This is in keeping with the accrual accounting principle which is to record expenses as they occurred, not when they are paid. When payments are made for these expenses in the following month, cash account is credited and the accounts payable account is debited. If however expenses are paid without delay, they do not appear in the accounts payable account and the entries required are to debit the expense item account and credit cash at the time the expense occurs.

Two worked examples follow to show how the accounts payable account is posted.

EXAMPLE 1

Purchases Journal

Date
Creditors
Folio
Accounts
Payable
CR

Purchases
DR
Office
Supplies
DR
General
Repairs
DR

Others
DR/(CR)



$
$
$
$
$
Mar 04
Bull & Son

730
850


(120)
 "    09
Woody Peck

430
430



 "    11
AB Repairs

240


240

 "    18Bull & Son

570
600


(30)
 "    22
YZ Supplies

180

180


 "    27WX Deco

350



350
    "   29Rainbow & Co

500
500












Total

3,000
2,380
180
240
200









General Ledger

Accounts Payable Account

Date

Folio
Debit
Credit
Balance



$
$
$
Mar 31
For month of March


3,000
3,000






Purchases Account

Date

Folio
Debit
Credit
Balance



$
$
$
Mar 31
For month of March

2,380

2,380






Office Supplies

Date

Folio
Debit
Credit
Balance



$
$
$
Mar 31
For month of March

180

180






General Repairs

Date

Folio
Debit
Credit
Balance



$
$
$
Mar 31
For month of March

240

240






Returns Outwards Account

Date

Folio
Debit
Credit
Balance



$
$
$
Mar 31
For month of March


120
120






Discounts Received

Date

Folio
Debit
Credit
Balance



$
$
$
Mar 31
For month of March


30
30






Furniture Account

Date

Folio
Debit
Credit
Balance



$
$
$
Mar 31
For month of March

350

350







EXAMPLE 2

Purchases Journal

Date
Creditors
Invoice No.
Folio
Amount




$
Mar 04
Bull & Son
A007

850
"    09
Woody Peck
3210

430
"    18 Bull & Son
A016

600
"    29
Rainbow & Co
789

500






Total


2,380






Purchases Ledger

Bull & Son Account

Date

Folio
Debit
Credit
Balance



$
$
$
Mar 04
Purchases


850
850
Mar 18
Purchases


600
1,450

Woody Peck

Date

Folio
Debit
Credit
Balance



$
$
$
Feb 22
Purchases*


380
380
Mar 09
Purchases


430
810

Rainbow & Co

Date

Folio
Debit
Credit
Balance



$
$
$
Jan 16
Purchases*


270
270
Feb 14
Purchases*


160
430
Mar 29
Purchases


500
930

* These are purchases still outstanding brought forward from previous months.

General Ledger

Accounts Payable Account

Date

Folio
Debit
Credit
Balance



$
$
$
Jan 31
Purchases


270
270
Feb 28
Purchases


540
810
Mar 31
Purchases


2,380
**3,190

Purchases






Balance
Date

Folio
Debit
Credit
Debit
Credit



$
$
$
$
Mar 31
Purchases

2,380

2,380


** The closing balance (amount still owing) in the Accounts Payable Account is made up of:


$
Bull & Son
1,450
Woody Peck
810
Rainbow & Co
930



3,190



Last Updated (Friday, 22 October 2010 11:26)