The suppliers are individuals who may sell the raw materials to the business on credit. The account payable is a liability account wherein it accounts for the amount that business generally owes from its suppliers. Once the account payable is debited, there would be a corresponding credit to the cash account. Whenever, the business pays backs to the vendor, it would result in decrease in the account payable account which in turn would result in debit in the account payable account. Similarly, an asset account would be composed of prepaid asset such as prepaid expenses, prepaid insurance, fixed assets such as fixtures, vehicles and equipment. The expense account could range from advertising expense, rent expense and repairs or maintenance expense account. On issuance of the vendor invoice, a corresponding debit entry would go either into the asset account or an expense account. They would get credit corresponding to the account payable account. These invoices are termed as vendor invoices. Normally, when supplies are purchased by the business from either the supplier or the vendor, the vendor or the supplier would issue invoices. Similarly, the format of the account payable journal entry when there is debit entry is as follows: The format of account payable journal entry when there is a credit entry would be as follows: In order to record account payable as either credit or debit, there would be proper recording by creating journals. Recording of Accounts Payable Credit or Debit The business commits to return the amount to the supplier in the time line of one month. The raw materials would be worth of $2,500 as cost to the business.
The PQR company has approached the supplier to take up some raw materials on credit. Help the management prepare the account payable entry. This would result in the decrease of account payable for the business as the business has paid off his dues or liable amount to the supplier in time without any penalty or interest. It paid back the supplier account payable worth $1,000 in cash. The business went back to the supplier after one month. The entry for the journal would be posted as follows: Please help the management to record the journal entry of account payable. The raw materials would be worth of $1,000 as cost to the business. The ABC company has approached the supplier to take up some raw materials on credit. Examples of Accounts Payable Credit or Debitįollowing are the examples are given below: Example #1
It is purely a recording of transactions happening in line with the account. This is the broad reason that why account payable is a credit or debit.
Similarly, whenever a business repays the amount owed on purchasing items or raw materials from the suppliers and creditors on credit, the business has paid the corresponding liability and the corresponding amount would be reduced to decrease the balance of the account payables wherein to record such transactions, there would be a debit to the account payable liability account. Hence, whenever a business buys items or raw materials from the suppliers and creditors on credit, the business owes them the corresponding amount and this would increase the balance of the account payables wherein to record such transactions, there would be a credit to the account payable liability account. Therefore, account payable is regarded as a liability account and any increase to the amount of account liability would be credited and any decrease to the amount of the accounting liability would be debited.
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Start Your Free Investment Banking Courseĭownload Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others Similarly, as a general accounting principle, it is to be noted that whenever there is decrease in the asset account, decrease in expense account and increase in the liability account, increase in accounts of revenue and equity, then such entries would be recorded as a credit. Why is Accounts Payable Credit or Debit?Īs a general accounting principle, it is to be noted that whenever there is increase xin the asset account, increase in expense account and decrease in the liability account, decrease in accounts of revenue and equity, then such entries would be recorded as a debit. However, when the business repays the payable amount, it decreases the account payable account and there would be a debit in the account payable account. Therefore, whenever a business purchases items on credit, it would increase the value in account payable and hence the account payable would be credited. The account payable can be defined as the amount that the business owes to its suppliers, as well as customers and creditors and generally is classified as a liability account. Introduction of Accounts Payable Credit or Debit
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