Business and Personal Finance: Recording Accounts Payable Transactions

Controlling Purchase Costs – Recording Accounts Payable Transactions

When you have accounts payable transactions, you have inventory purchases. Companies that have inventory use the accrual accounting method. So, if you have accounts payable, your company uses the accrual method.

That makes things a little easier, because there’s only one way to do things: you record all transactions when they happen, whether or not money changes hands. There are two basic accounts payable transactions: purchases and payments. Purchase entries, recorded in the purchase journal, always include at least a debit to purchases and a credit to accounts payable. As you record these entries, make sure to indicate the vendor, his invoice number, and your purchase order number.


Purchase returns and allowances are recorded in the general journal, usually upon receipt of a credit memo from the vendor. These entries include a debit to accounts payable, since the balance you owe will be reduced, and a credit to the purchase returns and allowances account (a contra account).

When you pay your vendors, record the entry in your cash payments journal. These entries always include a debit to accounts payable and a credit to cash, but they may also include an additional credit to purchase discounts. As you record these entries, include the vendor and the invoice number (or numbers, if you’re paying for more than one invoice at a time) in the description box.

As you fill a page in either the purchases journal or the cash payments journal, foot all your columns; then verify that your total debits equal your total credits, making sure that your journal remains in balance. Once the numbers are verified, you can post dedicated column totals to the associated general ledger accounts. Each line item, though, must be posted individually to the specific vendor’s account in the accounts payable subledger.

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