Paying what you owe

Paying a supplier does not create an expense; the expense was recorded when the bill arrived. Paying it swaps cash for a smaller liability: Dr Accounts payable, Cr Cash.

Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.

What it is for

A bookkeeper records the payment as a repair expense. Now repairs shows 600 for a 300 job, the payable never clears, and the supplier's statement and the books disagree by 300 every month until somebody finds it.

How to think about it

Before recording a payment, ask whether the bill was already recorded. If it was, the debit goes to accounts payable, not to an expense. The expense has already had its turn.

Worked example

Last week: Dr Repairs expense 300 / Cr Accounts payable 300

The bill arrived. The expense is recorded here, once.

Today: Dr Accounts payable 300 / Cr Cash 300

The bill is paid. Liability down, cash down.

Accounts payable after = 300 − 300 = 0

Nothing owed.

Repairs expense: still 300, recorded once

Paying did not make the repair cost more.

Your turn

Pay a supplier the 1,200 already recorded as owed. Write the debit line.

Dr  1,200 / Cr Cash 1,200

The trap

Expensing the payment. The expense is doubled and the payable is left standing, and both errors are invisible on a trial balance because it still balances.

Practise paying a payable on HoneA question on it now, a coding challenge where there is one, and it is remembered for review. Free, no email needed.