Accounts Payable Journal Entry
Accounts Payable Journal Entry arises when a business, purchases certain goods or avails certain services, like maintenance, rent, housekeeping, stationery, carriage in respect of trading goods etc. on a future payment basis. When each of these goods are purchased in cash, the business does not have any liability towards the provider or seller of such goods or services.
However, incase such a purchase is made/services are availed, for which payment is to be made after the date when these goods are provided/service obtained, a liability is raised in favor of the person who has provided such goods/ services. The credit balance table to such a person is generally referred to as an accounts payable. Accounts Payable or Trade Payables is a current liability account.
Accounts Payable Journal Entry for Credit Purchases of goods
Question 1:
What would be the Journal Entry for Purchase of goods amounting to Rs. 10,000 from ABC Co. on credit ?
Explanation:
Since Purchase of goods is an expense, so, Purchases A/c would be debited, because according to the Rules of Debit and Credit, an expense A/c is debited .
Further , on Purchases of goods in Credit from ABC Co., the company incurs a liability towards ABC Co. or in other words the liability of the company is increased.
When a liability is increased, the liability account is credited , as according to the Rules of Debit and Credit, an increase in liability account is credited.
Hence the entry would be as under :
Purchase A/c Dr. 10,000
To ABC Co. A/c 10,000
Accounts Payable Journal Entry for Wages
Question 2 :
What would be the Journal Entry for Wages payable to workers amounting to Rs. 1,125 ?
Explanation:
Since Wages payable to workers is an expense, so, Wages A/c would be debited, because according to the Rules of Debit and Credit, an expense A/c is debited .
Further , on Wages payable to workers, the company incurs a liability towards workers on account of amount payable, or in other words the liability of the company is increased. When a liability is increased, the liability account is credited , as according to the Rules of Debit and Credit, an increase in liability account is credited. Accordingly, Wages Payable Account, which is an Account Payable would be credited.
Hence the entry would be as under :
Purchase A/c Dr. 1,125
To Wages Payable A/c 1,125
Accounts Payable Journal Entry for Interest on Short term Loan
Question 3 :
What would be the Journal Entry for Interest on Loan , due on loan, where interest amounts to Rs. 10,000 ?
Explanation:
Since Interest payable to lenders is an expense, so, Interest A/c would be debited, because according to the Rules of Debit and Credit, an expense A/c is debited .
Further , on Interest payable to lenders, the company incurs a liability towards lenders on account of amount payable, or in other words the liability of the company is increased. When a liability is increased, the liability account is credited , as according to the Rules of Debit and Credit, an increase in liability account is credited. Accordingly, Outstanding Interest on Short Term Loan, which is an Account Payable would be credited.
Hence the entry would be as under :
Interest A/c Dr. 10,000
To Outstanding Interest on Short Term Loan A/c 10,000
Accounts Payable Journal Entry for Office expenses
Question 4 :
What would be the Journal Entry for office expenses (these could be any expenses like Rent, Maintenance, Stationery, Telephone or any other similar expenses) 10,500 , where such expenses amounts to Rs. 10,500 ?
Explanation:
Since office expenses (like Rent, Maintenance, Stationery, Telephone or any other similar expenses) is an expense A/c, so, office expense A/c would be debited, because according to the Rules of Debit and Credit, an expense A/c is debited . (We can replace the name of the ” office expenses” which such expense in the accounting entry).
Further , when such expenses incurred and the company does not pay the amount upfront to the provider of service, the company incurs a liability towards service providers, on account of amount payable, or in other words the liability of the company is increased. When a liability is increased, the liability account is credited , as according to the Rules of Debit and Credit, an increase in liability account is credited. Accordingly, ” office expenses payable ” account would be credited.
Hence the entry would be as under : –
Office expenses A/c Dr. 10,500
To Office Expenses payable A/c 10,500
We can similarly Pass an entry, for any other type of office expense which is payable. For example, the accounting entries for various expenses will be as under : –
Rent Payable
Rent A/c Dr. 10,500
To Rent payable A/c 10,500
Telephone expenses Payable
Telephone expenses A/c Dr. 10,500
To Telephone expenses payable A/c 10,500
Maintenance Expenses Account Payable
Maintenance Expenses A/c Dr. 10,500
To Maintenance Expenses payable A/c 10,500
Printing and Stationery Accounts Payable
Printing and Stationery A/c Dr. 10,500
To Printing and Stationery payable A/c 10,500
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