Bought supplies on credit journal entry

Overview

In the business, the company may buy the office supplies on credit as it usually has a close relationship with its suppliers when it has operated the business for a period of time. Likewise, for accounting, the company needs to make the journal entry for the bought supplies on credit by recognizing the liability it incurs for the transaction.

Later, when it makes the payment for the supplies it bought on credit, it can debit the accounts payable to eliminate the liability. In any case, if the company does not make the first journal entry and wait until it makes the payment, both total assets and total liabilities will be understated.

Bought supplies on credit journal entry

The company can make the journal entry for the bought supplies on credit by debiting the office supplies account and crediting the accounts payable.

Account	Debit	Credit
Office supplies	$$$
Accounts payable		$$$

In this journal entry, the office supplies account is an asset account on the balance sheet, in which its normal balance is on the debit side.

Later, when the company makes the payment for the bought office supplies which was on the credit, it can make the journal entry as below:

Account	Debit	Credit
Accounts payable	$$$
Cash		$$$

The company makes this journal entry to settle the liability that occurred in the first transaction.

Example

For example, on January 28, 2021, the company ABC bought supplies of $800 on credit from one of its suppliers. Only later on February 26, 2021, did it makes the $800 cash payment to settle this account.

What is the journal entry for the supplies bought on credit on January 28, 2021? and journal entry for cash payment on February 26, 2021?

Solution:

On January 28, 2021

The company ABC can make the journal entry for the supplies bought on credit on January 28, 2021, as below:

Account	Debit	Credit
Office supplies	800
Accounts payable		800

If this journal entry is not made, both total assets and total liabilities on the balance sheet of the company ABC will be understated by $800.

On February 26, 2021

When the company ABC makes the payment for the supplies bought on January 28, 2021, it can make the journal entry to eliminate the $800 payable as below:

Account	Debit	Credit
Accounts payable	800
Cash		800

After this journal entry, the company ABC’s accounts payable will be reduced by $800.