Can You Debit Accounts Payable?
Accounts payable commonly referred to as AP is a key concept that is commonly used in accounting and bookkeeping. It refers to the claim that suppliers and vendors have against the business due to products or services that it bought on an installment credit basis. Some humanities’ῶνs debate whether they can debit accounts payable. In this article, the writer will also describe what accounts payable is, when one depts accounts payable as opposed to crediting it, and examples of when one debits accounts payable.
What is Accounts Payable?
Accounts payable is one of the current liabilities or the amount of money owed by an organization that is due to be paid within the following twelve months. This appears in the balance sheet as a component of the current liabilities. This implies that AP is one of those balance sheet accounts that would normally hold a credit balance because of the amounts owed.
In double-entry accounting, when a business purchases an item on credit, accounts payable are recorded on the right side of the ledger. This leads to an increment in the AP balance which will indicate that the business is now indebted to that supplier. The offsetting debit is typically recorded in an expense account such as the Inventory account or the Office Supplies account.
May I Know, If It Is Possible to Debit Accounts Payable?
As a rule, accounts payable are not debited. Since AP is a liability, debiting the account would be wrong since it would decrease the amount of liabilities recorded. Therefore, the accounts payable line is almost always CREDITED.
However, there are some situations where debiting AP is appropriate:
1. Vendor Credit Memos: If a vendor has issued a credit memo, which means the business owes the vendor less than previously, then the credit memo can be charged to AP. This property leads to a reduction in the accounts payable balance.
2. Correcting Errors: If the account was credited erroneously, debiting AP restores the entry into the appropriate account. Such debit entries should bear such references as ‘to correct error’ to explain why the AP is debited.
3. Vendor Prepayments: If you provide some payment in advance to the supplier for the services to be received in the future then accounts payable are debited. This deems part of AP as a more easily recoverable asset since it is paid in advance.
4. Discounts and Allowances: Trade discounts, rebates, and any other allowances that are freely given and connected to the existing AP amount can be charged to the AP account. This correctly minimizes the outstanding balances due.
In each case, there is a credit entry to accounts payable which has a related debit that will balance the transaction. Some of the common credit accounts are known as asset accounts such as Cash, Prepaid Expenses, Inventory as well as expenses accounts.
Some of the accounts that can be debited against the accounts payable include:
Here are some examples of debit entries to accounts payable to help illustrate when AP can be debited:
1. Received a $100 credit memo from a vendor for returned goods that were originally purchased on credit:
Accounts Payable $100
Credit Memos $100
2. Incorrectly recorded $500 of inventory as a credit to AP; correcting error:
Accounts Payable $500
Inventory $500
3. Paid a vendor in advance to secure services for the next quarter; converting AP into prepaid expense:
Prepaid Services Expense $1,200
Accounts Payable $1,200
In each of the situations, the plan is that AP is debited together with a credit which makes the transaction structurally balanced while at the same time providing a correct view of the economic transaction.
Accounts Payable with Debts and Credits
In summary, for accounts payable:
- It raises accounts payable (AP) to new amounts due
- Debits of AP are done only for vendor credits, prepayments, discounts taken, or correcting errors.
Otherwise, AP, as a rule, holds an overall credit balance equal to the unpaid amount of the vendors’ receipts. A direct debit of accounts payable without an offsetting transaction is also not advisable since it distorts the actual figures of liabilities.
Conclusion
As in most situations, accounts payable are credited when purchases on credit are made, there are a few circumstances under which AP is debited. Such items include; accounts receivables, prepaid expenses, rebates, discounts, and accrued adjustments.
However, the point to understand is that every credit made to an account, like accounts payable in this case, must always be balanced by a debit. Recording AP as an asset without an offset distorts the account balances and the business’s liability to its vendors. It also plays a vital role in checking, monitoring, and ensuring that accounts payable are accounted for appropriately by putting in place proper internal controls.
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