There are two things one can buy from a supplier – an item of inventory or an item of expense (be it service or an item charged directly to expenses). Whilst items of inventory are a topic on their own, with this post we’ll focus on expenses.
Once you’ve determined that an invoice is to be charged to expenses, you must next determine the expense account you’ll charge it onto. Say for instance you bought fuel to your car and this is to be charged to an income statement account ‘Fuel’. Your accounting entry would then look something like this:
|Credit||Payable to suppliers||50|
Should it be that you’re paying on spot, your entry would be as follows:
With this you’ve accounted an expense on to your income statement and effectively decreased your earned profits for the period.