A payable journal entry is a financial accounting record that documents the recognition of a liability or obligation to pay in the future.
When a business incurs an expense but has not yet made the payment, it creates a payable entry to reflect this outstanding obligation on its balance sheet.
Typically, this involves crediting the payable account, representing the amount owed, and debiting the corresponding expense or asset account.
This entry serves to accurately reflect the financial position of the business by acknowledging its liabilities and ensuring that expenses are recognized in the period they are incurred, even if the payment is deferred.
The payable journal entry is part of the accrual accounting system, allowing businesses to provide a more accurate representation of their financial status.
It enables companies to track their financial commitments, manage cash flow effectively, and adhere to accounting principles.
As payments are made, the payable entry is adjusted accordingly to reflect the reduction in the liability, ensuring that the financial statements remain up-to-date and reflective of the company’s current financial health.
What is a Journal Entry?
More information is available here: a Journal Entry.
Accounts Payable/Bills Payable Journal Entry
Here is a typical accounts payable journal entry:
Suppose a company purchases $1,000 worth of office supplies on credit from a supplier.
The entry to record this transaction would look like this:
Debit: Office Supplies Expense $1,000
Credit: Accounts Payable $1,000
In this entry:
The Office Supplies Expense account is debited to recognize the increase in an expense associated with the purchase of office supplies.
The Accounts Payable account is credited to acknowledge the company’s obligation to pay for the office supplies in the future.
This entry indicates that the company has incurred an expense by obtaining office supplies but has not made the payment yet.
As the company pays off the accounts payable in the future, additional journal entries will be made to reflect the reduction in the liability.
This initial entry accurately captures the financial impact of the transaction on the company’s balance sheet and income statement.
Paid Accounts Payable
Assuming the company makes a cash payment of $1,000 to settle the accounts payable:
Debit: Accounts Payable $1,000
Credit: Cash $1,000
In this entry:
The Accounts Payable account is debited to reflect the decrease in the company’s liability.
This entry shows that the company has fulfilled its obligation by making the payment for the office supplies.
The Cash account is credited to record the decrease in the company’s cash balance due to the payment.
This journal entry indicates that the accounts payable related to the office supplies purchase has been settled with a cash payment.
As a result, the company’s balance sheet accurately reflects the reduced liability, and the cash account reflects the decrease in available cash.
When a company takes out a loan and issues a promissory note to the lender, it needs to record the transaction in its accounting books.
The journal entry to record a notes payable typically involves debiting the cash account to reflect the increase in cash from the loan and crediting the notes payable account to record the liability.
Here’s an example of a journal entry to record a note with interest included:
Debit: Cash $100,000
Credit: Notes Payable $100,000
Notes Payable with Interest Journal Entry
If the note includes interest, the company will also need to record an interest expense and interest payable account.
Debit: Interest Expense $1,000
Credit: Interest Payable $1,000
A loans payable journal entry is a record of a company’s loan transactions in its accounting books.
When a company takes out a loan, it records a debit to the cash account and a credit to the loan payable account, reflecting the increase in liabilities.
As the company makes payments on the loan, it reduces the loan payable account and records an interest expense.
The specific journal entry for a loan payable may vary based on the terms of the loan, such as whether it is a short-term or long-term loan.
Here is an example of a journal entry for a loan payable:
When the loan is obtained:
Debit: Cash in Bank $3,000
Credit: Loan Payable $3,000
This entry reflects the increase in cash from the loan and the increase in liabilities due to the loan.
As the company makes payments on the loan, the loan payable account is reduced, and the interest expense is recorded.
A salary payable journal entry is a type of entry in business accounting journals that describes how much a company owes its employees for work performed but has not yet paid.
It is recorded as a current liability on the balance sheet.
When recording a salary payable, the Salaries Expense account is debited, and the Salary Payable account is credited.
Salaries Expense $1,000
Salaries Payable $1,000
When the actual payment is made, the Salary Payable account is debited, and the Cash account is credited.
Salary Payable $1,000
Cash on Hand/Cash in bank $1,000
This entry helps in accurately tracking the financial inflows and outflows related to employee compensation
Rent Payable Journal Entry
A rent payable journal entry is used to record the unpaid rent expense of a business entity at the end of its accounting period.
Rent payable is a kind of liability and is credited in the books of accounts.
The journal entry for rent payable is as follows:
Debit: Rent Expense (or Rent Payable Account)
Credit: Rent Payable Account
For example, if a tenant owes $20,000 in rent for the month of December, which is to be paid in January, the journal entry would be:
Debit: Rent Expense ($20,000)
Credit: Rent Payable ($20,000)
This entry recognizes the rent expense for the period and creates a liability for the unpaid rent.
Rent payable liability is classified as short term or current liability in the balance sheet because it is highly expected to be met within one year period of the date of its creation.
When the rent is paid, the liability is removed, and the journal entry would be:
Debit: Rent Payable ($20,000)
Credit: Cash ($20,000)
In cases where rent is paid by cheque, the journal entry would be:
Debit: Rent Expense ($20,000)
Credit: Cash in Bank ($20,000)
The rent payable journal entry records the unpaid rent expense and creates a liability for the same. The liability is then removed when the rent is paid, either in cash or by cheque
Income Tax Payable
An income tax payable journal entry is a record of the amount of tax that a company owes on its taxable income for a given period.
To record income tax expense, a journal entry is made that includes a debit to income tax expense and a credit to income tax payable.
Income Tax Expense $50,000
Income Tax Payable $50,000
The income tax expense represents the amount of tax that the company owes for the current period, based on its taxable income.
Furthermore, the income tax payable account represents the amount of tax that the company has not yet paid to the government.
Income tax payable is a liability reported for financial accounting purposes and is reported in the current liabilities section of a company’s balance sheet.
When a company remits the tax payment to the government, the payment is recorded in the general ledger, with debits and credits to show that the taxes have been paid.
Accrued Accounts payable Journal Entry
An accrued accounts payable journal entry is used to record an expense that has been incurred but not yet paid.
It is a means of recognizing an expense in the accounting period in which it was incurred, rather than when it is paid.
When recording an accrued accounts payable journal entry, the expense account is debited, and the accrued expense liability account is credited.
This ensures that the transaction is reflected in the financial statements, providing a more accurate view of the company’s financial position.
When the expense is eventually paid, the accrued expense liability is reduced, and the cash account is credited.
When a utility bill is received, an accounting entry is made to debit the Utilities Expense account and credit the Utilities Payable account.
This increases both the expense for the period and the liability on the balance sheet.
The Utilities Payable account represents the amount owed by a business for utilities consumed but not yet paid for, including services like electricity, gas, water, and heating.
When the bill is eventually paid, another journal entry is made to debit the Utilities Payable account to decrease the liability and credit the Cash or Bank account to reflect the outflow of money.
The journal entry for receiving a utility bill is to debit the Utility Expense account and credit the Accounts Payable or Utilities Payable account, depending on how the business chooses to record it.
Accounts Payable (AP) refers to an account within the general ledger representing a company’s obligation to pay off short-term debts, including utility bills.
Write Off Accounts Payable Journal Entry
When a company needs to write off an accounts payable, it must create a journal entry to clear the account balance.
The journal entry involves debiting the accounts payable account and crediting another account, typically an income account.
Debit: Accounts Payable $1,000
Credit: Other Income/Prior Years Adjustment $1,000