Examples of an
Accounts Payable
Journal Entry 

Are you trying to understand how making an accounts payable journal entry applies to your business? Here are some examples of an accounts payable journal entry to help you understand the system.

Accounting is a very practical and important discipline, but it is also confusing for many people. Many business owners have difficulty tracking their expenditures and payments. The best way to learn to make an accounts payable transaction is to see it in practice. The following real world transactions and examples of an accounts payable journal entry will clarify the process.


Examples of an Accounts Payable Journal Entry

 There are a number of different types of scenarios that you may encounter while recording accounts payable. You may either purchase goods entirely on credit or make an initial down payment. Some suppliers also offer discounts, which can make bookkeeping slightly more complicated. Here are some examples of each of these situations and the journal entries associated with them.

Purchasing Office Supplies Entirely on Credit

Richard is the owner of the law firm R. J. Nelson and Co. He is purchasing $300 worth of stationary for his office. The purchase is made entirely on credit, so Richard will need to make the following debit and credit entries to adjust for accounts payable:

Account                     Debit       Credit

Supplies                               300  

Accounts Payable                                   300

According to the Fundamental Rule of Accounting, debit entries must be made whenever the value of assets is increased, while credit entries are made for increases in liabilities. The process needs to be reversed when those values are decreased. Therefore, Richard will need to complete the following transactions after paying off his accounts payable:

Account                      Debit       Credit

Accounts Payable               300  

Cash                                                            300

The process was very straightforward, because Richard made the entire purchase on credit and paid it off all at once. However, the journal entries can be more complex in the other real world applications outlined below.

Hiring Contractor With 50% Upfront Payment

Dennis is a downtown grocer that needs to make some repairs to his store. He chooses to hire a local contractor that requires customers to make a 50% down payment on estimated cost. The contractor expects that the store repairs will cost $10,000, so Dennis will have to pay $5,000 upfront, while the remaining balance will be credited to accounts payable. The journal entries will be made as follows:

Account                      Debit          Credit

Services Expense               10,000  

Cash                                                                 5,000

Accounts Payable                                         5,000

Dennis will need to make the following entries after paying the remaining balance when the project is completed:

Account                      Debit          Credit

Accounts Payable             5,000  

Credit                                                              5,000

The process is still relatively simple after seeing an example in practice. The biggest mistake many people make is failing to create a credit entry for cash for the initial down payment, which causes their cash balances to be improperly recorded.

Receiving Discount for Early Purchase

Richard has recently used the stationary that he purchased a couple of months earlier. While filling his new order, the supplier states that they have started providing a 3% discount for payments made 30 days early. How does this affect the journal entries? The initial transaction is the same:

Account                       Debit           Credit

Supplies                                  300  

Accounts Payable                                            300

However, Richard will need to make a separate credit entry to reflect the new discount:

Account                       Debit           Credit

Accounts Payable                300  

Cash                                                                    291

Purchase Discounts                                            9

In the example of an accounts payable journal entry above, the $9 purchase discount (the 3% discount on the $300 purchase), is created as a separate credit entry.

Accounts Payable Entries Are Straightforward

Many business owners have difficulty understanding the bookkeeping process for recording accounts payable. Fortunately, it is much easier to understand how to make an accounts payable journal entry after seeing the process in action. These examples should help you understand some of the steps that you will need to take in real world situations.

Should you want to discuss your accounts payable journal entries or thinking of getting the help of a bookkeeping service, we will be honored to talk to you.


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