Accounts 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.
Journal Entries for Accounts Payable
Whenever there is any transaction related to the purchase of goods or services on the account then there arises the liability known as accounts payable liability. This is to be created and recorded in the books of accounts by the company. For the purpose of recording the journal entries for accounts payable, the amount is measured using the seller’s invoice as it usually contains information in detail regarding the amount that buyer has to pay and the due date.
Below are some of the common situations wherein the accounts payable journal entries are to be maintained.
Typical Accounts Payable Journal Entries
#1 – Purchase of the merchandise inventory on account:
When there is a purchase of the merchandise inventory on account, by using the following journal entry, the liability relating to the accounts payable journal entries will be created:
The journal entry passed above for recording the accounts payable liability will be made under the periodic inventory system. However, in the case of the company uses the perpetual inventory system then the debt part would be replaced by the “inventory account” instead of “purchases account”. The entry, in that case, will be as follows:
#2 – Damaged or undesirable inventory returned to supplier:
In case the part of inventory or whole of the inventory that was purchased on the account is found by the buyer to be damaged or undesirable then he may either return the same back to the seller or ask from the seller for the allowance in form of a reduction in the prices. Now if the seller approves the return or the allowance then the buyer will reduce the accounts payable liability by that amount in his books of accounts. In such cases the journal entry that will be passed for reducing the liability of the accounts payable is as follows:
Note: The entry for the return of goods or allowance will not be recorded in the general journal as mentioned above in case separate Purchases return and allowance journal is maintained by the buyer and then return and allowance will be recorded in that purchase return and allowance journal.
#3 – Entry when there is the purchase of asset other than the merchandise inventory on account:
In case there is the purchase of asset other than the merchandise inventory on accounts like the plant, furniture, equipment, tools, or other fixed assets, then the entry to record accounts payable liability is as follows:
#4 – Entry when the expenses are incurred on account or the services purchased on account:
When any person acquires any of the professional services like financial consultancy, legal services, etc. or it incurs the expenses for which the payment is to be done on any future date then in that case
If some professional services (such as market and legal services etc.) are acquired or expenses are incurred and the payment for them is to be made in future then the accounts payable liability comes into existence and the entry to record accounts payable liability is as follows:
#5 – Entry when the payment is done to the creditor or to payable:
After the creation and recording of the accounts payable liability, when the payment is done to the creditor or to payable then there will be the reduction in the accounts payable liability and the same will be recorded by making a journal entry as follows:
Examples of Accounts Payable Journal Entries
The Journal Entries that are typically used to record the accounts payable are as follows:
Accounts Payable Journal Entries – Example #1
On 5th February 2019 Sports international ltd purchased the raw material worth $5,000 from smart international ltd on the account and promised to pay for the same in cash on 25th February 2019. Prepare the necessary journal entries to record the transactions.
Entries to record the transactions are as follows:
Accounts Payable Journal Entries – Example #2
During the month of February 2019 the Mid-term international ltd. did the transactions as mentioned below. The company uses the periodic inventory system and for the purpose of accounting the discounts, the company uses the gross method.
- Feb 02: Company purchased the inventory worth $ 50,000 with terms 2/10, n/30, FOB shipping point. For this, the freight expenses came to $ 500.
- Feb 04: It was found that out of the purchases, damaged goods were received worth $ 10,000 so it was returned to the supplier and credit is received.
- Feb 10: Paid the cash for the purchases made on Feb 02 to the creditors.
Prepare the necessary journal entries to record the transactions:
Entries to record the transactions are as follows:
This has been a guide to Accounts Payable Journal Entries. Here we discuss the most common type of journal entries for accounts payables along with practical examples. You can learn more about accounting from the following articles –
- What is Accounts Payable (AP) Cycle?
- Examples of Accounts Payable
- Accounts Receivable – Debit or Credit?
- Accounts Receivable Journal | Overview
- What are Accrued Expenses?
- Accounts Receivable vs Accounts Payable – Compare
- Accrued Expenses vs Accounts Payable – Compare
- Adjusting Journal Entries
- Accounting Closing Entries