Expense Payable Journal Entry is Debit the specific expense account and credit the expense payable account. An expense payable is a liability that a business incurs when it recognizes an expense but has not yet paid for it. Recording expenses payable accurately is important for reflecting the true financial position and obligations of the business.
What is an Expense Payable?
Expense payable, also known as accrued expense, is an expense that has been incurred but not yet paid by the end of an accounting period. This situation typically arises with expenses such as utilities, salaries, or interest that are recognized in one period but paid in the next.
Journal Entry for Expense Payable
When recording an expense payable, two main accounts are affected:
- Expense Account: This account records the incurred expense.
- Expense Payable (or Accrued Expense) Account: This liability account records the amount owed for the expense.
Here is the structure of the journal entry for recording an expense payable:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | [Specific Expense] | Amount | Record the incurred expense | |
| DD-MM-YYYY | To Expense Payable | Amount | Record the liability for the expense |
Example of a Expense Payable Journal Entry
Let’s say on 30-09-2023, a business incurs an electricity expense of ₹5,000 that will be paid in the next month.
Journal Entry for Electricity Expense Payable:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 30-09-2023 | Electricity Expense | 5,000 | Incurred electricity expense | |
| 30-09-2023 | To Expense Payable | 5,000 | Liability for electricity expense |
In this example:
- Electricity Expense account is debited because it represents the cost incurred.
- To Expense Payable account is credited because it represents the liability to pay the expense in the future.
Why Record Expense Payable?
- Accurate Financial Statements: Ensures that all incurred expenses are recorded, providing a true picture of the business’s financial performance.
- Liability Recognition: Reflects the business’s obligations and helps in managing payables.
- Expense Tracking: Helps in tracking incurred expenses and managing operating costs.
Steps to Record Expense Payable
- Identify the Incurred Expense: Determine the amount of the expense that has been incurred but not yet paid.
- Create the Journal Entry: Debit the specific expense account and credit the expense payable account.
- Adjust Financial Statements: Ensure the expense payable is reflected in the financial statements.
Conclusion
Recording expense payables accurately is crucial for maintaining reliable financial records and ensuring the financial statements reflect the true financial position of the business. By understanding how to create the journal entry for expense payable, businesses can manage their liabilities and expenses effectively.