When goods are purchased on credit from a supplier the amount owing to the supplier is recorded as an accounts payable. When a payment is made to the supplier for the amount outstanding the payment of the liability is recorded using an accounts payable payment journal entry.
As an example suppose a payment of 3,000 is made to a supplier using cash.
How do you show the Accounts Payable Payment?
The accounts payable payment transaction is shown in the accounting records with the following bookkeeping entries:
Accounts Payable Payment Bookkeeping Entries Explained
Debit – What came into the business
The debit to accounts payable shows the reduction in the liability to the supplier.
Credit – What went out of the business
Cash went out of the business with the payment of the supplier.
The Accounting Equation
The Accounting Equation, Assets = Liabilities + Capital means that the total assets of the business are always equal to the total liabilities of the business This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.
In this case one asset (cash) is reduced by the payment of 3,000, and on the other side of the equation, the liabilities (accounts payable) are reduced by the same amount.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.