Accounts Payable Credit or Debit
Accounts payable are the current liabilities that shall be settled by the business within twelve months. Accounts payable account is credited when the company purchases goods or services on credit. When the company repays a portion of its account payable, its balance is debited.
Understanding Debit / Credit of Accounts Payable
The journal entries for accounts payableJournal Entries For Accounts PayableAccounts Payable Journal Entries refers to the amount payable accounting entries to the creditors of the company for the purchase of goods or services and are reported under the head current liabilities on the balance sheet and this account debited whenever any payment is been made.read more debit or credit is shown below –
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For eg:
Source: Accounts Payable Credit or Debit (wallstreetmojo.com)
If your company buys some assets from a vendor and promises to pay after one month, that means Account Payable gets credited. Below will be a general entry for the same:
After one month, you will pay back the amount to the vendors by cash. That means your liability will go down or will get debited. So below will be a general entry for Account Payable Debit:
How to Record Debit / Credit of Accounts Payable?
Let’s see some examples to understand it better.
Example #1
Let’s say Company XYZ is buying inventory, which is a current assetCurrent AssetCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more worth $500 from its vendor. It has promised to pay back the amount in one month. So, in this transaction, the Account Payable account gets the credit, and the inventory account gets debitDebitDebit is an entry in the books of accounts, which either increases the assets or decreases the liabilities. According to the double-entry system, the total debits should always be equal to the total credits.read more. Below is the journal entry for Account Payable Credit:
After one-month, Company XYZ will pay back the amount with cash. That means cash amount will go down or get credited, and on the other hand, side Account Payable will get debited. Below will be accounting for the same:
Example #2 (IBM)
We will understand this concept from the year 2017 to 2018 for companies in the below practical example. IBM is an American Information technology multinational company which is headquartered in New York. Below is the Balance Sheet for IBM for the year 2018:
Source: www.ibm.com
As we can see that in 2017 Account Payable for IBM was $6,451 million, while in 2018, it got increased to $6,558 million. Though we cannot say how many transactions happened that year but overall since it is increasing hence it is an example Account Payable Credit for IBM.
Account Payable Credit for Year 2018 = 6558-6451 = $107 Mn.
Example #3 (Walmart)
For the second example, we will take the example of another American multinational company, Walmart. Walmart is a US multinational retail organization headquartered in Arkansas. Let’s see its balance sheet below:
Source: s2.q4cdn.com
As we can see that in 2017 Account Payable for Walmart was $41,433 million, while in 2018, it got increased to $46092 Mn. Though we cannot say how many transactions happened in that year but overall since it is increasing hence, it is an example Account Payable Credit for Walmart
Account Payable Credit for the Year 2018 = 46092-41433 = $4,659 Mn.
Example #4 (Apple)
Let’s investigate Apple’s annual report to find out whether its Account Payable got credited or debited in the last 1 year. Apple is a US multinational company that designs and develops mobile and media devices and personal computers and sells many kinds of software. Below is the balance sheet snippet of Apple annual report for 2018:
Source: s22.q4cdn.com
As we can see that in 2017 Account Payable for Apple was $44,242 million, while in 2018, it got increased to $55,888 Mn. As we can see that its business is growing, and having a high account payable is, in a way, a good sign that the company is handling its cash policies in a good way. Since Account Payable is increasing, that means it got credit in 2018
Account Payable Credit for the Year 2018 = 55888- 44242 = $11,646 Mn.
Example #5 (Amazon)
For our next example, we will investigate the balance sheet of Amazon, which is an American multinational companyMultinational CompanyA multinational company (MNC) refers to that business entity whose headquarter is in one country, and its branches or subsidiaries extend across the globe in two or more nations. The MNCs aim at maximum revenue generation by spreading business worldwide.read more focusing on e-commerce, cloud computing, and artificial intelligence. Below is the balance sheet snippet of Amazon annual report for 2018:
Source: Amazon.com
As we can see that in 2017 Account Payable for Amazon was $34,616 million, while in 2018, it got increased to $38,192 Mn. As we can see that its business is growing, and having a high account payable is, in a way, a good sign that the company is handling its cash policies in a good way. Since Account Payable is increasing, that means it got credit in 2018
Account Payable Credit for Year 2018 = 38192-34616 = $3,576 Mn.
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