Accounts Payable Questions And Answers
Here we discuss
about Accounts Payable Questions And Answers.
Is Accounts Payable An Asset or
Liability
No, Accounts Payable is not an Asset. Basically, when Entrepreneur buys goods on credit from the suppliers or sellers of the goods, then the amount that is payable to suppliers within the specified period of time creates a Liability for the firm. This Liability is called Current Liability or Accounts Payable as it is payable within Accounting Cycle or Accounting Period. So Accounts Payable is a Current Liability and not an asset.
Is Accounts Payable A Liability or Expense
Accounts Payable is not an expense because it is amount payable by the business to supplier or seller of goods at some future date within accounting cycle or current Accounting Period.
Expenses are paid for the purpose of producing revenue. When
Expenses paid liabilities are decreased. For Example, if an entrepreneur paid
its electricity bills of Rs.90000 during the current month, then its liability
decreases and expenses are increased.
Following Accounting Journal Entries
are passed:
When expenses for electricity bill are not paid, then
liability is increased by Rs.9000 and following Accounting Journal Entry is
passed:
1. Expenses - Electricity
Bills a/c 90000
Electricity Bill Payable a/c 90000
When the amount of bill is paid in Cash during the Current
Accounting Period, then following Journal Entry is passed:
2. Electricity Bill
Payable a/c 90000
Cash a/c 9000
As we the business paid the liability, so we reverse the above
entry no. 1 to write off the liability account:
3. Electricity Bill
Payable a/c 90000
Expenses - Electricity Bill a/c 90000
You may also be interested in Adjustments in Final
Accounts.
So, now, hopefully, you will be able to better
understand that Accounts Payable is Current Liability and not an Asset or
Expense.
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