Definition of Paying Accounts Payable
Under the accrual basis of accounting, expenses are recorded when they have occurred, not when they are paid. Therefore, if an amount involving an expense is recorded in the current liability Accounts Payable, the expense will be recorded as part of the entry. When the company pays the invoice, the balance in Accounts Payable is reduced and the balance in the company’s Cash account is reduced. The payment does not affect the amount of expenses or net income.
Example of Paying Accounts Payable
Assume that on January 2 a company has some of its office equipment repaired. The cost of the repair is $300 and is to be paid by January 31. On January 4, the invoice for the repair is recorded with a $300 debit to Repairs and Maintenance Expense–Office Equipment and a $300 credit to Accounts Payable. On January 31, the company pays the invoice and debits Accounts Payable and credits Cash for $300.
The January 31 payment affected two balance sheet accounts. No expense or other income statement account was affected.
