JournaldrillPaying accounts payable
When you pay a supplier for a purchase already recorded on account, debit Accounts Payable to remove the liability and credit Cash. No expense is recorded at payment because the expense or asset was recorded when the invoice was received.
Syntax
Dr Accounts Payable / Cr Cash| Part | What it is |
|---|---|
Accounts Payable | Liability debited for the amount of the invoice being settled. |
Cash | Asset credited for the amount actually paid. |
Inventory (or Purchase Discounts) | Credited for the discount when an invoice is paid within the discount period. |
Examples
Dr Accounts Payable 600 / Cr Cash 600Result: Liabilities down 600, assets down 600
Full payment of a 600 supplies invoice.
Dr Accounts Payable 2,000 / Cr Cash 2,000Result: Liabilities down 2,000, assets down 2,000, 3,000 still owed
Partial payment on a 5,000 invoice; the remaining 3,000 stays in Accounts Payable.
Dr Accounts Payable 4,000 / Cr Cash 3,920, Cr Inventory 80Result: Liabilities down 4,000, assets down 4,000
Invoice with terms 2/10, n/30 paid within 10 days; the 2% discount reduces inventory cost under the perpetual gross method.
Common mistakes
- Debiting an expense when paying the bill: that double counts the expense, because it was already recorded when the invoice was booked.
- Debiting Cash and crediting Accounts Payable: that is backwards and would increase both the liability and the cash balance.
- Paying after the discount period but still deducting the discount: if the discount is missed, pay and record the full invoice amount.
Practice Paying accounts payable
These drills check your answer on live data, free, no account needed.
- Paying an account payableLakeside Cleaning Co. bought cleaning supplies on account last month. Today it pays the supplier the full $1,750 it owes.
- Purchase discount takenBrightwater Home Goods bought $6,000 of merchandise on account, terms 2/10, n/30, and recorded it at the gross amount. Two days later it returned $500 of the goods and recorded the return. It now pays the remaining balance within the discount period. Brightwater uses a perpetual inventory system.
Questions
What is the journal entry when you pay accounts payable?
Debit Accounts Payable and credit Cash for the amount paid. The liability goes down and cash goes down.
Does paying a supplier affect the income statement?
No. The expense was recognized when the goods or service were received. Payment only moves amounts between a liability and cash.
Related
- Purchase on accountHow to record buying on credit: debit the asset or expense received and credit Accounts Payable. Examples for supplies, equipment and merchandise.
- Purchase discountsHow to record paying a supplier within the discount period: Dr Accounts Payable, Cr Cash and Cr Inventory (or Purchase Discounts). Gross and net methods.
- Collecting a receivableHow to record a customer paying an invoice: debit Cash, credit Accounts Receivable. Partial payments, early-payment discounts and why there is no revenue.
- Debits and creditsDebits and credits in plain English: the rule for assets, liabilities, equity, revenue and expenses, the DEALER memory aid and worked entries.