Learn It
Accounts Payable (often called A/P) is a liability account. It represents money the business owes to vendors and suppliers for goods or services already received but not yet paid for. Every time you enter a bill, A/P goes up. Every time you pay that bill, A/P goes down.
As we saw in the Purchases and Expenses lesson, some purchases are paid immediately — cash leaves the bank right away. But many vendors send a bill and give the business time to pay, often 15 or 30 days. That time is called payment terms.
There is a key idea here that trips up many new bookkeepers: entering a bill records the expense or asset AND creates the amount owed. Paying that bill later reduces the liability. The payment should not create the expense again.
See It
Let's follow a small landscaping business through a simple vendor transaction.
1. Enter a bill for $500 of mulch
The business receives $500 of mulch from a supplier. The supplier sends a bill with Net 30 terms — payment due within 30 days. Entering the bill does two things at once: it records the $500 expense (or asset) and it creates a $500 liability in Accounts Payable.
| Account | Debit | Credit |
|---|---|---|
| Supplies Expense | 500 | — |
| Accounts Payable | — | 500 |
2. Pay the bill 20 days later
Twenty days later, the business pays the $500 bill from its checking account. This payment does not create a new expense. The expense was already recorded when the bill was entered. The payment simply reduces the liability and reduces cash.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | 500 | — |
| Cash | — | 500 |
Notice: Supplies Expense does not appear in the payment entry. The expense was already recorded. Recording it again would double-count the cost.
3. Vendor issues a $100 credit
The supplier realizes $100 of the mulch was damaged and issues a credit memo. This reduces what the business owes. The credit can apply to the existing bill or a future bill.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | 100 | — |
| Supplies Expense | — | 100 |
Common A/P Mistakes
- Recording the expense again when the bill is paid — this double-counts the cost.
- Entering the same bill twice — the vendor balance is too high and the expense is overstated.
- Paying a bill without applying it to the correct vendor — the wrong vendor balance is reduced.
- Forgetting to enter vendor credits — the business pays more than it actually owes.
- Not reviewing vendor statements — discrepancies between your books and the vendor's records go unnoticed.
Do It
Now it's your turn. Calculate each vendor's ending balance, then complete the A/P aging report as of April 30.
Do It — Vendor Balances and Aging
Below is a small vendor ledger. Each vendor has one bill, a payment made, and possibly a vendor credit. Your job is to:
- Calculate each vendor's ending balance and type it in.
- Complete the A/P aging table as of April 30.
Terms are Net 30 (payment due within 30 days of the bill date). Use the bill date to calculate how many days past due each unpaid balance is as of April 30.
| Vendor | Bill Date | Bill | Payment | Credit | Balance (type) |
|---|---|---|---|---|---|
| GreenLine Supplies | Mar 12 | $600 | $600 | $0 | $ |
| Bluewater Services | Mar 22 | $1,500 | $0 | $0 | $ |
| Corner Hardware | Apr 5 | $900 | $400 | $0 | $ |
| Delta Electric | Apr 18 | $700 | $0 | $200 | $ |
| Total A/P (your balances) | $0 | ||||
A/P Aging Report — As of April 30
Type each vendor's unpaid balance into the correct aging bucket. Days past due = April 30 minus bill date, minus 30-day terms.
Prove It
Answer each question, then read the explanation. There's no score — this is just to help the ideas stick.
Question 1
A business receives a $500 utility bill. The bill is recorded in the books. Two weeks later, the business pays the bill. What happens when the payment is made?
Question 2
What does an A/P aging report show?
Question 3
A vendor issues a $200 credit memo to the business after a billing error. What is the effect on what the business owes that vendor?
Ready for more than a short exercise?
This exercise isolates one skill — tracking vendor balances and aging. QBO Dojo practice clients let you apply multiple bookkeeping skills together across realistic business activity inside QuickBooks Online.
Explore QBO Dojo Practice ClientsKey Takeaways
- Accounts Payable is a liability — money the business owes vendors for things already received.
- Entering a bill records the expense or asset AND creates the liability at the same time.
- Paying a bill reduces Accounts Payable and Cash — it does not create a new expense.
- Vendor credits reduce what the business owes and can apply to existing or future bills.
- An A/P aging report groups unpaid bills by how long they have been outstanding.
- Total vendor balances should always equal total Accounts Payable on the books.