Journal Entry for Full Settlement

Full Settlement is the payment that company made to the supplier to clear all the outstanding accounts payable of one specific invoice.

When company makes a purchase, the seller may offer you the option to pay for the item over time. This is known as purchase on credit. You’ll need to agree to terms and conditions, including the interest rate and repayment schedule.

Purchase on account is a type of purchase that allows you to buy goods or services now and pay for them later. This type of purchase can be helpful if you need the goods or services right away but do not have the money to pay for them upfront.

When you make a purchase on account, you’ll usually need to provide the seller with some kind of payment methods, such as a credit card or a bank account number. This will allow the seller to charge you for the purchase later on. It’s important to note that purchases on account often come with interest charges. So, if you are not able to pay off the balance in full by the due date, you’ll end up paying more than the original purchase price. If you are about to make a purchase on account, it’s important to read the terms and conditions carefully so that you understand all of the associated costs.

The company will require to make payment to settle the outstanding accounts payable with the supplier. The company may have several invoices to settle, and they can make partial or full settlements depending on each invoice’s due date and cash available. Full settlement is the payment that company makes to pay off a specific invoice.

Journal Entry for Full Settlement

The company record accounts payable when they purchase the goods on credit. The transaction will increase purchase items and accounts payable on the balance sheet.

When the company makes the full settlement, they have to reverse the accounts payable. It settles the whole invoice rather than a partial payment. The journal entry is debiting accounts payable and credit cash.

Account	Debit	Credit
Accounts Payable	$$$
Cash		$$$

The transaction will remove the accounts payable of a specific invoice from the supplier and reduce cash payment.

Example

During the month, company ABC purchases the inventory from supplier for $ 10,000 on credit. The supplier has delivered the goods alongside the invoice. At the end of the month, management decides to make a full settlement. Please prepare a journal entry for full settlement.

When the company purchases inventory on credit, they have to record it after receiving the items. The company should record inventory and accounts payable.

Account	Debit	Credit
Inventory	10,000
Accounts Payable		10,000

This journal entry will make full settlement of the accounts payable that ABC has with the supplier.

When ABC make a full settlement, it means they will pay off the $ 10,000 accounts payable with the supplier. The journal entry is debiting accounts payable of $ 10,000 and credit cash at bank $ 10,000.

Account	Debit	Credit
Accounts Payable	10,000
Cash at Bank		10,000