Accounting 101 – Accounts Payable

Small Business Bookkeeping Basic Account Entry Lessons

Oct 10, 2009

Learn how to record accounts payable with the purchases journal, check register and subsidiary ledger accounts. A basic understanding of accounts payable functions.

Accounts payable (AP) is an important part of almost every small business. When purchases are made, most businesses are given credit terms where the money is paid at a later date. Payments to be made for purchases at a later date are known as accounts payable. There are two basic journals for recording transactions to accounts payable, the purchase journal and the check register.

Even though using bookkeeping software will help with the daily use of accounting functions for a small business, it’s still important to have an understanding of the basic functions of accounting. Before learning how accounts payable is posted to the journals, it’s important to understand the functions of debits and credits. Understanding how debits and credits work is the first step into grasping the fundamentals of accounting.

Accounts Payable and the Purchase Journal

When purchases are made on open credit terms, they’re recorded in the purchase journal. The manual (non-computerized) journal has a series of columns for the more common general ledger (GL) accounts. The first GL account column is usually accounts payable. The remainder of GL accounts is normally assets or expenses. Unless a purchase is returned, the accounts posted are almost always an increase. The following debit and credit rules are generally used with the purchase journal.

Accounts Payable Subsidiary Ledger Accounts

After the transaction is posted to the purchase journal, the accounts payable amount (credit) is then transferred to the subsidiary ledger accounts. The subsidiary ledger accounts are used to keep track of the various entities that the company owes money to. Each entity (usually another business) has its own sub ledger and account number. Once the payable transaction is transferred, a note is made to the journal to show that the transaction was made.

Accounts Payable and the Check Register

The check register is used to record all checks that are written for the business, including payments made for accounts payable. When a check is written for payment on account, debits and credits are simultaneously posted to adjust accounts payable as well as the cash account.

When a check is written for direct payment (not on account) of an asset or expense, a debit is posted as an increase to the asset or expense. A direct payment is also simultaneously posted to the appropriate GL accounts when the check is written from the register.

The totals from the purchase journal and check register are then transferred to the general ledger accounts. With computerized accounting software the totals are usually transferred daily to the GL. At the end of the month the GL accounts are then transferred to the appropriate financial statements. Since accounts payable is a liability, the GL totals for AP are transferred to the balance sheet.

The copyright of the article Accounting 101 – Accounts Payable in Bookkeeping is owned by James Clausen. Permission to republish Accounting 101 – Accounts Payable in print or online must be granted by the author in writing.