We have just received a phone bill for 150 at the start of the month. Usually they are not paid right away, but on the due date of the payment.
Accounting Entries
So first we have to “register” the phone bill. We are going to add 150 to expenses and accounts payable.
| Debit | Credit | |
| Expense | 150 | |
| Accounts Payable | 150 |
Now when you have paid for the phone bill, you have given money for it, you decrease accounts payable and cash for 150.
| Debit | Credit | |
| Accounts Payable | 150 | |
| Cash | 150 |
Reporting
When you receive a phone bill and you haven’t paid for it then you should add that under Current liabilities. In our example we are adding 150 under Current liabilities – Trade and other payables.
Now when you have paid for the phone bill, then you can remove the amount from liabilities and decrease cash by 150. We assume that you had 2,000 before, so its 2,000 – 150 = 1,850
Finally we are going to add administrative expenses to Income statement – they increase by 150.
