Accounts Payable Journal Entries
Accounts payable represent amounts a company owes to its suppliers or creditors for goods or services received but not yet paid for. Below are some common journal entries related to accounts payable:
Example 1: Recording a Purchase on Credit
Scenario:
Your company purchases inventory worth $10,000 on credit from a supplier on July 1, 2024.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 07-01-2024 | Purchase/Inventory A/c Debit | 10,000 | |
| 07-01-2024 | To Accounts Payable A/c | 10,000 |
Explanation:
- Purchase/Inventory is debited to recognize the addition of inventory to the company’s assets.
- Accounts Payable is credited to record the liability to the supplier.
Example 2: Payment to a Supplier
Scenario:
On August 1, 2024, your company pays $10,000 to the supplier to settle the outstanding account payable.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Accounts Payable A/c Debit | 10,000 | |
| 08-01-2024 | To Bank A/c | 10,000 |
Explanation:
- Accounts Payable is debited to eliminate the liability.
- Bank is credited to reflect the outflow of Bank to settle the debt.
Example 3: Recognizing a Purchase Discount
Scenario:
Your company pays $9,800 to settle an accounts payable of $10,000 within the discount period, taking advantage of a $200 discount offered by the supplier.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Accounts Payable A/c Debit | 10,000 | |
| 08-01-2024 | To Bank A/c | 9,800 | |
| 08-01-2024 | To Purchase Discounts A/c | 200 |
Explanation:
- Accounts Payable is debited to remove the liability.
- Bank is credited for the actual payment made.
- Purchase Discounts is credited to recognize the discount received.
Accounts Receivable Journal Entries
Accounts receivable represent amounts owed to a company by its customers for goods or services provided but not yet paid for. Below are some common journal entries related to accounts receivable:
Example 1: Recording a Sale on Credit
Scenario:
Your company sells goods worth $15,000 on credit to a customer on July 1, 2024.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 07-01-2024 | Accounts Receivable A/c Debit | 15,000 | |
| 07-01-2024 | To Sales Revenue A/c | 15,000 |
Explanation:
- Accounts Receivable is debited to recognize the amount owed by the customer.
- Sales Revenue is credited to record the income from the sale.
Example 2: Receiving Payment from a Customer
Scenario:
On August 1, 2024, your company receives $15,000 from the customer as payment for the goods sold on credit.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Bank A/c Debit | 15,000 | |
| 08-01-2024 | To Accounts Receivable A/c | 15,000 |
Explanation:
- Bank will debited to reflect the increase in cash from the customer’s payment.
- Accounts Receivable will credited to remove the outstanding amount owed by the customer.
Example 3: Recognizing a Sales Discount
Scenario:
Your customer pays $14,700 within the discount period to settle an accounts receivable of $15,000, taking advantage of a $300 discount.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Bank A/c Debit | 14,700 | |
| 08-01-2024 | Sales Discounts A/c Debit | 300 | |
| 08-01-2024 | To Accounts Receivable A/c | 15,000 |
Explanation:
- Bank will debited for the amount received from the customer.
- Sales Discounts will debited to record the discount given.
- Accounts Receivable will credited to remove the full amount owed.
Example 4: Writing Off Uncollectible Accounts Receivable
Scenario:
Your company decides to write off an uncollectible accounts receivable of $2,000 from a customer on October 1, 2024.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 10-01-2024 | Bad Debt Expense A/c Debit | 2,000 | |
| 10-01-2024 | To Accounts Receivable A/c | 2,000 |
Explanation:
- Bad Debt Expense will debited to recognize the loss from uncollectible accounts.
- Accounts Receivable will credited to remove the uncollectible amount from the records.
These entries provide a comprehensive overview of how to manage accounts payable and accounts receivable in a company’s financial records, ensuring accurate tracking of liabilities and receivables.