How to Journalize Paying a Bill in Accounting
Companies use a general journal to record transactions such as the purchase of goods, selling goods, purchasing supplies and paying utilities. When a company receives a bill that has not been paid, the company must debit or increase an expense account while issuing a matching credit or increase in accounts payable. An expense exists as the cost a company must pay to generate revenue. Accounts payable is a liability which places an obligation on a company's resources. For example, if a company receives a $55 gas bill, the company must debit gas expense for $55 and credit gas bill payable for the same amount. Remitting cash payment takes the gas bill payable off the company's books.
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Instructions
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Record the date of the cash payment. Make sure you do not record the date when the company received the bill, since that date should already be recorded in the general journal when the bill was initially received. The date indicates when cash was withdrawn from the business to cover the obligation.
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Write the amount the company must pay to satisfy the bill on the same line as the date of the transaction. For example, if the company is paying a $100 telephone bill, debit the telephone bill payable account for $100. However, if the company is paying the bill at the time of receipt as opposed to a later date, it must debit telephone expense as opposed to debiting a payable account. This occurs because a payable does not get created when a company immediately sends cash payment for a bill. Debiting a payable decreases the amount in the account while debiting an expense increases the amount in the account.
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Write the amount of cash paid directly below the debit entry. A credit to a company's cash account indicates cash was used to cover the obligation. The debit amount to the payable or expense account must match the amount credited in the cash account. For instance, if a company debited telephone expense for $100, a $100 credit to cash must appear in the general journal to ensure the transaction balances. A credit to a cash account indicates a decrease in cash.
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