A paid cash on account journal entry is needed when a business has paid cash to a supplier and the amount is not allocated to a particular supplier invoice or the supplier has not yet been invoiced.
For example, suppose a business is provided with design services and has paid cash of 2,000 to a supplier. The cash payment needs to be debited to the suppliers accounts payable account.
The paid cash on account journal entry will be as follows.
Paid Cash on Account Journal Entry
| Account | Debit | Credit |
|---|---|---|
| Accounts payable | 2,000 | |
| Cash | 2,000 | |
| Total | 2,000 | 2,000 |
Paid Cash on Account Bookkeeping Explained
Debit
The amount is debited to the accounts payable account of the supplier to record the fact that the cash has been paid to them. It will later be allocated to an invoice posted on the account of the supplier.
Credit
Cash has been paid by the business and needs to be credited to the asset account of cash.
Accounting Equation for Paid Cash on Account Journal Entry
The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the equity 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 decreases as the cash is paid by the business to the supplier. On the other side of the accounting equation a liability (accounts payable) decreases as the money paid to the supplier reduces the amount owed.
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