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 Confused by this statement
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Posted on 08-03-20 8:48 AM     Reply [Subscribe]
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Account and Finance scholars please help me to clear my confusion.

https://www.investopedia.com/ask/answers/031015/whats-difference-between-accrued-expenses-and-accounts-payable.asp

Accrued Expenses vs. Accounts Payable: Example
For example, consider a company that pays salaries to its employees on the first day of the following month for the services received in the prior month. So, an employee that worked in the company all of June will be paid in July. At the end of the year on December 31st, if the company’s income statement recognizes only salary payments that have been made, the accrued expenses from the employees’ services for December will be omitted.

By contrast, imagine a business gets a $500 invoice for office supplies. When the AP department receives the invoice, it records a $500 debit in the accounts payable field and a $500 credit to office supply expense. As a result, if anyone looks at the balance in the accounts payable category, they will see the total amount the business owes all of its vendors and short-term lenders. The company then writes a check to pay the bill, so the accountant enters a $500 debit to the checking account and enters a credit for $500 in the accounts payable column.

Stated journal entries are quite opposite. Supply expense should be Debited and Accounts payable should be credited.

When check is written to pay account payable: accounts payable is going down should be Debited and cash/bank account is going down should be credited.

What am I missing ? My journal entries are quite opposite that Investopedia.

Last edited: 03-Aug-20 08:55 AM

 
Posted on 08-03-20 1:05 PM     [Snapshot: 138]     Reply [Subscribe]
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When the AP department receives the invoice, it records a $500 debit (liability) in the accounts payable field and a $500 credit to office supply expense (received items).
Most contracts are net 30 or 60 days out, this first transaction accounts for that.

The company then writes a check to pay the bill, so the accountant enters a $500 debit to the checking account and enters a credit for $500 in the accounts payable column.
Actual payment. debit on checking because you spent money.
Credit on AC payable because you reduced your Supply Expense (previously credited) from your previous transaction.

 
Posted on 08-03-20 2:26 PM     [Snapshot: 204]     Reply [Subscribe]
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Accounts Payable is not an asset but liability which has credit balance. If we receive invoice mean our credit is gone up.  Ordered Supplies as expenses ( non-inventory), Expenses are debited/ a debit balance. 

Supplies (Expenses) Dr $500.m
Accounts Payable Cr $500.
(Supplies purchased on credit)

When we process a/p and paid it has following impact and following effect on general ledger ( am i correct?)

Accounts Payable Dr $500
Bank Account Cr. $500.

Bank has Debit balance and if we write a check it is going down and we credit it.

Still I am struggling on the entry suggested by Maxpayne and Investopia.
If you are right then what am I missing?

Last edited: 03-Aug-20 02:32 PM
Last edited: 03-Aug-20 03:10 PM

 
Posted on 08-03-20 3:43 PM     [Snapshot: 261]     Reply [Subscribe]
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You're thinking opposite. You reduced your liability by paying from your account. That's why it's a debit. (similar to your regular bank transcations).

Ac payable is credit because you reduced liability.
(Similar to your credit card payments) look at those statements as a example.
Last edited: 03-Aug-20 03:43 PM

 
Posted on 08-03-20 4:08 PM     [Snapshot: 279]     Reply [Subscribe]
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Just realized you are stuck on credit purchase vs credit on statements. These are two diff things.

When you buy sth on credit this happens.
Supply Increases (literally)>>>crediting here means you're assigning a positive value monetary wise to that account. (you could technically sell the supply to generate cash)
Your Debt increases: Debit Account Payable because now you have a negative value on this account. (your went from 0 to -100 to pay that later)

2nd transcation.
you pay 100

now
you have to cancel that debt (not debit) increase by paying the due amount.

Bank account gets debited (reduce the cash on that account so debit)
Account payable gets Credited (you are paying money to bring the account from -100 to 0 now, this is increase in account value cash wise) so we credit 100.

If you look at these both transactions at the end:

you can see
you credited Supply AC
you debited your back account (This would be a straight transaction if you paid cash right away)

you brought ac payble from 0-100 on first transcation; then on the second paid +100 to bring back to 0.(cancelled that prev transcation)


 
Posted on 08-04-20 3:26 PM     [Snapshot: 484]     Reply [Subscribe]
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Thank you, Max
I am going to open my book and clear the cloud.
 


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