Accounts Payable Credit or Debit

Understanding Debit / Credit of Accounts Payable

The journal entries for accounts payableJournal Entries For Accounts PayableAccounts Payable Journal Entries refers to the amount payable accounting entries to the creditors of the company for the purchase of goods or services and are reported under the head current liabilities on the balance sheet and this account debited whenever any payment is been made.read more debit or credit is shown below –

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If your company buys some assets from a vendor and promises to pay after one month, Account Payable gets credited. Below will be a general entry for the same:

After one month, you will pay back the amount to the vendors by cash. That means your liability will go down or will get debited. So below will be a general entry for Account Payable Debit:

How to Record Debit / Credit of Accounts Payable?

Let’s see some examples to understand it better.

Example #1

Let’s say Company XYZ is buying inventory, a current assetCurrent AssetCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more worth $500 from its vendor. It has promised to pay back the amount in one month. So, in this transaction, the Account Payable account gets the credit, and the inventory account gets debitDebitDebit represents either an increase in a company’s expenses or a decline in its revenue. read more. Below is the journal entry for Account Payable Credit:

After one-month, Company XYZ will pay back the amount with cash. That means the cash amount will go down or get credited; on the other hand, the side Account Payable will get debited. Below will be accounting for the same:

Example #2 (IBM)

We will understand this concept from 2017 to 2018 for companies in the below practical example. IBM is an American Information technology multinational company headquartered in New York. Below is the Balance Sheet for IBM for the year 2018:

Source: www.ibm.com

As we can see, in 2017 Account Payable for IBM was $6,451 million, while in 2018, it increased to $6,558 million. Though we cannot say how many transactions happened that year, overall, since it is increasing, it is an example of Account Payable Credit for IBM.

Account Payable Credit for Year 2018 = 6558-6451 = $107 Mn.

Example #3 (Walmart)

For the second example, we will take the example of another American multinational company, Walmart. Walmart is a US multinational retail organization headquartered in Arkansas. Let’s see its balance sheet below:

Source: s2.q4cdn.com

As we can see, in 2017 Account Payable for Walmart was $41,433 million, while in 2018, it increased to $46092 Mn. Though we cannot say how many transactions happened in that year but overall since it is increasing hence, it is an example of Account Payable Credit for Walmart.

Account Payable Credit for the Year 2018 = 46092-41433 = $4,659 Mn.

Example #4 (Apple)

Let’s investigate Apple’s annual report to find out whether its Account Payable got credited or debited in the last one year. Apple is a US multinational company that designs and develops mobile and media devices and personal computers and sells many kinds of software. Below is the balance sheet snippet of Apple’s annual report for 2018:

Source: s22.q4cdn.com

As we can see, in 2017, Account Payable for Apple was $44,242 million, while in 2018, it increased to $55,888 Mn. As we can see that its business is growing, and having a high account payable is, in a way, a good sign that the company is handling its cash policies in a good way. Since Account Payable is increasing, that means it got credit in 2018

Account Payable Credit for the Year 2018 = 55888- 44242 = $11,646 Mn.

Account Payable Credit for Year 2018 = 38192-34616 = $3,576 Mn.

This has been a guide to Accounts Payable Credit or Debit. Here we discuss how to record accounts payable credit or debit with explanations. You may learn more about accounting from the following articles –

  • Accounts Payable CycleAccounts Payable vs. Notes PayableAccounts Receivable vs. Accounts Payable