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+--- Thread: Accounting Help, Understanding Debits & Credits (/Thread-Accounting-Help-Understanding-Debits-Credits)
Accounting Help, Understanding Debits & Credits - Kephrem1 - 04-17-2013
I have question on the question below,
When a company incurs an expense that they won't be paying immediately (i.e. utilities) the amount gets debited to the expense account and credited to the accounts payable (liability) account.
Utilities expense - debit $300
Accts Payable - credit $300
I believe since utilities are expenses and they go up by Dr that is the reason why we debit $300, correct?
Now with respect to Accts payable, it is a liability account and it goes up by Cr, that is the reason why we Cr it by $300?
Last question, if all the above is correct, how come we are not making any adjustments to Cash account (Assets) which will go down (Cr cash account) once we pay the bill (Accounts Payable Dr)
Thanks in advance for your help!
Accounting Help, Understanding Debits & Credits - onlystuff - 04-17-2013
I believe the above is accurate, Cash is not adjusted because you have not made any payment (to this point). If you transact on Cash what account do you transact on the opposite side? Debits=Credits, if you perform one on one side you must match with the other on the opposite side.
Once the payment is made you would post the appropriate transaction.
Let's say you pay the bill in full, a CR to Cash for $300 - a DR to Accounts Payable for $300 - a CR to Utilities expense $300.
That leaves you in balance. The original DR for Util Expense is balanced by the CR, the Cash CR is balanced by the Acct Payable DR.
Someone correct me if I am wrong.
Accounting Help, Understanding Debits & Credits - chiquitacobbe - 04-17-2013
onlystuff Wrote:I believe the above is accurate, Cash is not adjusted because you have not made any payment (to this point). If you transact on Cash what account do you transact on the opposite side? Debits=Credits, if you perform one on one side you must match with the other on the opposite side.
Once the payment is made you would post the appropriate transaction.
Let's say you pay the bill in full, a CR to Cash for $300 - a DR to Accounts Payable for $300 - a CR to Utilities expense $300.
That leaves you in balance. The original DR for Util Expense is balanced by the CR, the Cash CR is balanced by the Acct Payable DR.
Someone correct me if I am wrong.
The proper transaction is as follows:
Dr Utilities (Expense)
Cr Accounts Payable (liability)
When AP cuts the check the following transaction happens
Dr Acounts Payable
Cr Cash
The Utility expense is not touched again. If it was there would be no record of how much Utilties cost on the P&L. The AP account should be cleared to 0.