A payment of a liability to a Supplier (Accounts Payable) of 4,000 is made using cash.
How do you show the Payment of a Liability?
The Payment of a Liability transaction is shown in the accounting records with the following bookkeeping entries:
Payment of a Liability Bookkeeping Entries Explained
Debit – What came into the business
The liability to the supplier (accounts payable) is reduced by the amount paid.
Credit – What went out of the business
Cash went out of the business with the payment of a liability to settle the Supplier Account
The Accounting Equation
The Accounting Equation, Assets = Liabilities + Capital 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 both the Assets (cash) and the Liabilities (accounts payable) are reduced by the same amount (hence the – sign on each side of the equation).
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. 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 degree from Loughborough University.