Accounts payable journal entry is a Expense A/c Debit because this increase the expenses and Credit to Account payable because this increase liability account. Accounts payable represents the amount a business owes to its suppliers for goods or services received on credit. Properly recording these transactions is essential for accurate financial reporting and maintaining good relationships with suppliers.
Key Concepts
- Accounts Payable: A liability account that tracks the amount the business owes to suppliers.
- Expense Account: The account that records the cost of goods or services received.
Journal Entry for Accounts Payable
Example Scenario
Assume a company purchases office supplies worth ₹50,000 on credit on 01-07-2023 from a supplier.
Step-by-Step Journal Entry
- Record the Purchase on Credit
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-07-2023 | Office Supplies Expense | 50,000 | Purchase of office supplies on credit | |
| 01-07-2023 | To Accounts Payable | 50,000 | Amount owed to supplier |
Explanation
- Debit to Office Supplies Expense: This increases the expense account, reflecting the cost of the office supplies.
- Credit to Accounts Payable: This increases the accounts payable, reflecting the amount owed to the supplier.
Example Scenario: Payment of Accounts Payable
Assume the company pays ₹50,000 to the supplier on 15-07-2023.
Step-by-Step Journal Entry
- Record the Payment to Supplier
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 15-07-2023 | Accounts Payable | 50,000 | Payment to supplier | |
| 15-07-2023 | To Cash/Bank | 50,000 | Payment of outstanding amount |
Explanation
- Debit to Accounts Payable: This decreases the accounts payable, reflecting the payment made to the supplier.
- Credit to Cash/Bank: This decreases the cash or bank balance, reflecting the payment.
Conclusion
Accurately recording accounts payable ensures that the business’s liabilities are correctly represented in the financial statements. Properly managing these transactions helps maintain accurate and reliable financial records, contributing to better cash flow management and stronger supplier relationships.