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A business makes a purchase return by sending goods back to a supplier and the supplier issues a credit note.
The goods have a purchase value of 2,000 and had been purchased from the supplier on account, the balance due remains outstanding in the creditors (accounts payable) ledger account of the supplier.
Accrued expenses are expenses which has been incurred but not yet recorded in the accounting ledgers at the end of the accounting period.
A business has an annual premises rent of 12,000 but an invoice has not been received from the landlord and the rental expense has not been recorded in the accounting records.
A prepaid expense is an expense which has been paid in advance.
A business has an annual premises rent of 60,000 and pays the landlord quarterly in advance on the first day of each quarter. On the 1 January it pays the next quarter rent of 15,000 to cover the 3 months of January, February, and March. It has a prepaid expense of 15,000.
If as a business, you buy goods on credit from a supplier (creditor) then the supplier will supply the goods and business will incur a liability to the supplier for that amount, but no cash will change hands at that stage. Suppose for example, the business buys goods on credit for the amount of 4,000.
