AccountingCapital Latest Questions

Emin Radwan
  1. This answer was edited.

    As we all know, a payment is made when we purchase a good or service on a credit or cash basis. In terms of a business, a vendor (supplier/creditor) is a person who sells goods to the company on a cash or credit basis with an agreement to receive the payment within a specified period. This in turn aRead more

    As we all know, a payment is made when we purchase a good or service on a credit or cash basis. In terms of a business, a vendor (supplier/creditor) is a person who sells goods to the company on a cash or credit basis with an agreement to receive the payment within a specified period.

    This in turn affects the accounts payables as the vendors are the creditors of the company as well as considered a short-term liability and are recorded under the head of current liabilities in the balance sheet.

    Journal entry for payment to vendor

    1.

    Purchase a/c Debit Debit  the increase in expense
    To Vendor a/c Credit Credit the increase in liability

    (being goods purchased from the vendor on credit)

    2.

    Vendor a/c Debit Debit  the decrease in liability
    To Cash a/c Credit Credit the decrease in asset

    (being payment made to the vendor)

    Example

    XYZ Ltd. purchased goods from a vendor amounting to 60,000 on a credit basis in May and agreed to make the due payment in July. The journal entries in the books of XYZ Ltd. are as follows:

    May Purchase a/c Debit 60,000
    To  Vendor a/c Credit 60,000

    (being goods purchased on credit from the vendor)

    July Vendor a/c Debit 60,000
    To  Cash a/c Credit 60,000

    (being payment made to the vendor in cash)

    Note: In case the company purchases the goods from the vendor directly for cash then only the following entry shall be passed in the books of accounts:

     

    Purchase a/c

     

    Debit

    Debit the increase in expense
     

    To Cash a/c

     

    Credit

    Credit the decrease in asset

    (being goods purchased from the vendor for cash)

    Hope this helps.

    See less
    • 1