JournaldrillPurchase on account
A purchase on account is recorded by debiting what you received (Supplies, Equipment, Inventory or an expense) and crediting Accounts Payable for the amount owed. The liability stays on the books until you pay, when you debit Accounts Payable and credit Cash.
Syntax
Dr Supplies / Equipment / Inventory / Expense / Cr Accounts Payable| Part | What it is |
|---|---|
Supplies | Asset debited for office or shop supplies bought to be used later. |
Equipment | Asset debited for long-lived items; the amount includes delivery and installation. |
Inventory | Asset debited for merchandise bought for resale under a perpetual system. |
Accounts Payable | Liability credited for the supplier's invoice amount. |
Examples
Dr Supplies 600 / Cr Accounts Payable 600Result: Assets up 600, liabilities up 600
Office supplies bought on 30-day terms.
Dr Equipment 12,000 / Cr Cash 4,000, Cr Notes Payable 8,000Result: Assets up 8,000 net, liabilities up 8,000
Equipment bought with a down payment and a note for the rest.
Dr Inventory 8,000 / Cr Accounts Payable 8,000Result: Assets up 8,000, liabilities up 8,000
Merchandise for resale under a perpetual system.
Common mistakes
- Debiting an expense for an asset: equipment or supplies bought to use later go to an asset account and become expense as they are used or depreciated.
- Crediting Cash when nothing was paid: a purchase on credit credits Accounts Payable; Cash is credited only when the bill is settled.
- Recording a purchase of inventory as Purchases under a perpetual system: perpetual systems debit Inventory directly; the Purchases account belongs to the periodic system.
Practice Purchase on account
These drills check your answer on live data, free, no account needed.
- Equipment bought with cash and creditHarbor Print Shop buys a large-format printer for $9,000. It pays $3,000 in cash today and agrees to pay the remaining balance to the supplier in 30 days.
- Merchandise bought on accountHarbor Outfitters, which uses a perpetual inventory system, buys $8,400 of hiking boots from a supplier on account, terms n/30.
Questions
Is accounts payable a debit or a credit?
Accounts Payable is a liability with a credit normal balance. It is credited when you buy on account and debited when you pay.
What is the difference between accounts payable and notes payable?
Accounts payable arises from ordinary supplier invoices with no formal document. Notes payable is backed by a signed promissory note and usually carries interest.
Related
- Paying accounts payableHow to record paying a supplier: debit Accounts Payable, credit Cash. Covers partial payments, paying within a discount period and the expense mistake.
- Inventory purchase (perpetual)How to record merchandise bought for resale under a perpetual system: Dr Inventory, Cr Accounts Payable, plus freight-in, purchase returns and periodic.
- Notes payableHow to record a promissory note: Dr Cash, Cr Notes Payable when borrowing; Dr Interest Expense, Cr Interest Payable at period end; repayment at maturity.
- Journal entry formatThe standard journal entry format: date, debit accounts first, credits indented, amounts in two columns and a short explanation. Simple and compound examples.