ACCOUNTS PAYABLE

Accounts payable normally arises from the credit purchases of inventory, equipment, supplies, and other assets from
suppliers. Accounts payable is considered as a short-term financing wherein the entity shall pay the supplier within a
specified period of time, usually ranging from 30 days to 60 days.
ACCOUNTING FOR ACCOUNTS payeesPAYABLE
within 180(A/P)
days after the date indicated in the
Transactions check.
Effect in A/P Pro-forma Journal Entry
Credit purchases made Postdated checksPurchases
are those dated beyond the reporting
xx
Increase date.
Accounts payable xx
Payments to suppliers beyond the To record
Decrease equal to the amount the payment
of cash Accountsof accounts
payable payable: xx
discount period payment Accounts payable Cash xx xx
Payments to suppliers within the Decrease equal to the amounts ofCashcash in Accounts
bank payable xxxx
discount period payments plus purchasesAdding back to theCash
discount A/P balance: xx
Cash in bank Purchase discount xx xx
Purchase returns or allowance from Accounts payablepayable
Accounts xxxx
unpaid credit purchases (receipt of Decrease b. Premature or late recording of suppliers’
Purchase return or allow. xx
credit memo from the supplier) invoices.
Issuance of promissory notes for Increase in accounts payable
Accounts will be recorded only
payable xx
Decreaseupon the receipt of invoice from supplier of goods
overdue accounts payable Notes payable xx
These transactions can be summarized in the following and services. As a result, in the absence of contrary
t-account: information, the receipt of supplier invoice is
presumed to be recorded as an increase in the
Accounts Payable accounts payable balance.
Payments to xx xx Beginning Pro-forma journal entry to record the receipt of
credit purchases Balance supplier invoice is as follows:
Purchase xx xx Gross credit Purchases or other expense account xx
discount purchases Accounts payable xx
Purchase return xx It should be highlighted that we are talking about
or allowances accounts payable account and not the inventory
from unpaid account.
credit purchases There will be some time lags between the incurrence
Issuance of xx of liability (transfer of legal title) and the actual
promissory note receipt of invoice (recording of liability). The timing
for overdue of transfer of the legal title will still depend on the
accounts shipping terms, primarily FOB shipping point and
payable FOB destination.
Ending balance xx a. FOB shipping point – on the date of the
(squeeze) supplier’s shipment of goods.
Total xx xx b. FOB destination – on the date of the entity’s
Transactions on the credit side increase the balance of receipt of goods.
accounts payable while those on the debit side decrease
balance of accounts payable.

ADJUSTMENTS TO ACCOUNTS PAYABLE

BALANCE
a. Unreleased, stale, and postdated checks
prepared by the entity.
Unreleased checks are checks made but not yet given
to the payees as of the reporting date.
Stale checks are checks made but not yet encashed by