Accounting Entries for Invoices

We will discuss here how accounting entries are generated with accounts affected in Payables.
For example, there is a business case
We do an arrangement with a supplier that we will buy some services from him at the cost of $100.

    1. 70% ($70) will be paid in Advance before the start of the work
    2. 30% ($30) will be paid after the work is completed.

Following events will occur in Payables to accomplish this

  1. We will first enter a Pre-Payment Invoice for $70 and will validate, approve and Pay this.
  2. When the final bill comes,
    1. Enter an invoice of the total Amount $100
    2. Apply the prepayment invoice of $70 to this invoice
    3. Validate and approve this invoice
    4. Now when we will pay, only $30 will be paid because $70 is already paid through Prepayment.

Following will be Accounting Entries of these events.

 

DEBIT ($)

CREDIT ($)

PREPAYMENT:

 

 

Prepaid Expense / Advance Paid

70

 

Supplier / Liability

 

70

PAYMENT of PREPAYMENT

 

 

Supplier / Liability

70

 

Bank / Cash / Cash Clearing

 

70

STANDARD INVOICE:

 

 

Expense / Item Expense / Misc. Expense

100

 

Supplier / Liability

 

100

PREPAYMENT APPLIED TO STANDARD INVOICE:

 

 

Supplier / Liability

70

 

Prepaid Expense / Advance Paid

 

70

PAYMENT OF STANDARD INVOICE

 

 

Supplier Liability

30

 

Bank Account

 

30

TOTAL

340

340

These accounting entries are generated in Payables from Invoice Entry to Invoice Payment. You can also see how Pre-Payment is accounted for. This knowledge is necessary to find out the balances of various accounts in GL. If you find any wrong balance, you can use this table to find out from where it might have generated.

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