How do you record a journal entry for accounts payable?

A supplier bill posted without matching debits and credits leaves the ledger out of balance and the supplier’s payable open. This guide is for anyone in accounts payable who needs to post the two entries that make up most of the work: the supplier invoice credits accounts payable, and the payment debits it. By the end you’ll be able to post both correctly, which keeps the ledger in balance and brings each supplier’s payable back to zero once the bill is settled.

Key takeaways

• A supplier invoice debits the expense, inventory or asset you bought and credits accounts payable.

• Paying the supplier debits accounts payable and credits cash or bank.

• Every entry carries equal debits and credits, which is what keeps the ledger balanced.

• Post the invoice after it has been checked against the purchase order and goods received note.

• Accrue goods received but not yet invoiced, and correct mistakes with new entries rather than edits.

What is an accounts payable journal entry?

An accounts payable journal entry is the double-entry record of a supplier bill or of its settlement. AccountingTools describes an account payable as arising whenever a supplier delivers goods or services that are not paid for in cash immediately. Bills paid on the spot never become trade payables.

Two entries cover the core cycle:

• On the invoice: Debit the expense, inventory or asset account that matches the purchase, and credit accounts payable.

• On payment: Debit accounts payable to remove the liability, and credit cash or bank.

Large AP teams usually post the detail to a payables subledger, one account per supplier, and carry only the total in the general ledger. AccountingTools notes that a business with few payables can post them directly to the general ledger.

The debit and credit rules for accounts payable

Accounts payable is a liability, so a credit increases it and a debit reduces it. Expense and asset accounts work in the opposite direction, with a debit increasing them. When a bill arrives, both sides go up together: the cost or asset you received and the amount you owe.

Each side of the cycle moves like this:

Trade payables sit in current liabilities. Under IAS 1, trade payables are part of the working capital used in the normal operating cycle. They are classified as current even when they fall due more than 12 months after the reporting date. In a supplier subledger a credit balance means you still owe money. A debit balance usually means you overpaid or hold an unused credit note.

Recording a supplier invoice for inventory, asset or expense

The credit is always accounts payable. The debit depends on what the bill is for, and for inventory it also depends on your inventory system.

The usual pairings are:

A perpetual system updates the inventory account with every purchase. A periodic system collects purchases in a Purchases account between stock counts. At period end you move that balance into inventory, then calculate cost of goods sold as opening inventory plus purchases minus closing inventory.

Here are two bills side by side, a GBP 12,000 stock purchase on a perpetual system and a GBP 500 office supplies invoice:

A fixed asset bill can include more than the price on the invoice. IAS 16 includes in the cost of property, plant and equipment the purchase price, import duties, and non-recoverable taxes. It also includes costs directly attributable to getting the asset ready for use, such as delivery and installation. General administrative overheads are excluded.

A GBP 999 laptop under a GBP 1,000 capitalisation limit goes to expense straight away.

Timing depends on your accounting basis:

• Accrual accounting: You record the bill and the payable when the invoice arrives, using the invoice date.

• Cash basis accounting: Nothing is recorded until you pay, so there is no payable.

In the UK, HMRC made the cash basis the default for sole traders and partnerships from the 2024 to 2025 tax year. Companies and LLPs are excluded and use accruals, which is the basis this guide assumes.

Recording payment to the supplier, including partial payments

A payment debits accounts payable and credits bank for the amount actually paid. Part-payments work the same way: you post each payment separately against the original invoice, and the payable shrinks with each one until it reaches zero.

In the worked example below, which uses illustrative figures, a GBP 6,000 stock invoice is paid in two instalments:

As a T-account, accounts payable shows GBP 6,000 on the credit side and GBP 2,500 plus GBP 3,500 on the debit side, so the two sides net to zero. The next step after each payment is to apply it to the specific invoice in the supplier subledger. A part-payment posted “on account” without that link leaves you with an open invoice and an unallocated debit, and someone has to untangle them later.

Returns, credit memos and debit memos

A return or price reduction lowers what you owe, so accounts payable is debited. The credit goes to whichever account the original bill debited, or to a contra account if your system uses one.

The entries by situation:

• Return, perpetual system: Debit accounts payable and credit inventory.

• Return, periodic system: Debit accounts payable and credit Purchase returns and allowances, a contra account that reduces Purchases.

• Return of an expensed item: Debit accounts payable and credit the original expense account.

• Allowance where you keep the goods: Use the same entries, because the price falls even though no stock moves.

• Refund after you have already paid: Debit cash and credit inventory (or the contra account), because the payable no longer exists.

For example, returning 15 units bought at GBP 100 each before payment, on a perpetual system, means debiting accounts payable GBP 1,500 and crediting inventory GBP 1,500.

When the supplier issues a credit memo (credit note), the supplier reduces its receivable and you reduce your payable. You can apply it against the open invoice or against your next payment to that supplier. Debit memo terminology varies. AccountingTools describes a debit memo as a seller’s document for an extra charge, while CFI describes a buyer sending a debit note along with returned goods. Whatever the document is called, the buyer’s books show a debit to accounts payable when the amount owed goes down.

Early payment discounts and VAT on supplier bills

Discounts and VAT change the amounts on each line of the entry. The debit-to-asset and credit-to-payable structure stays the same.

2/10 net 30 under the gross and net methods

Terms of 2/10 net 30 give a 2% discount for payment within 10 days, with the full amount due in 30. On a GBP 1,000 invoice the discount is GBP 20. The gross method records the full invoice and books the discount only if you take it. The net method records the invoice at GBP 980 and books a missed discount as an expense.

The four outcomes:

On a perpetual system the gross-method discount usually reduces inventory instead of going to a Purchase discounts account. AccountingTools calls the net method the more theoretically correct of the two. It notes that the gross method is used far more often. On the IFRS side, IAS 2 deducts trade discounts and rebates from the cost of purchase. The IFRIC tentatively agreed in 2004 that settlement discounts should also reduce inventory cost.

Recording VAT on a UK supplier invoice

VAT you can reclaim goes to an input VAT (VAT recoverable) account, kept separate from the cost. The UK standard rate is 20%. GOV.UK’s own example takes a VAT-inclusive price of GBP 180, divides it by 1.2 to get GBP 150 net, and leaves GBP 30 of reclaimable VAT.

Posted as an invoice and a payment, that becomes:

The payable is always the gross amount, because that is what the supplier will collect. Recovering the GBP 30 depends on some conditions:

• Evidence: HMRC treats a valid VAT invoice as the primary evidence for input tax. A simplified invoice is acceptable for supplies of GBP 250 or less including VAT.

• Timing: You normally claim in the return for the period in which you hold the invoice. Late claims are limited to 4 years from the due date of the return in which you first became entitled.

• Blocked VAT: VAT on entertaining anyone other than employees cannot be recovered, and most businesses that lease a car for business use cannot recover 50% of the VAT on the lease.

• Partial exemption: VAT on costs used for both taxable and exempt supplies is recoverable only to the extent the costs support taxable supplies.

VAT you cannot recover becomes part of the cost, so you debit it to the expense or asset rather than to input VAT. HMRC guidance also allows you to record the total VAT first and adjust for the irrecoverable part once it has been calculated. Partial exemption and mixed-use calculations depend heavily on a business’s own facts, so take advice from your tax adviser on those.

Where the entry fits in the accounts payable process

The invoice entry comes near the end of the purchasing cycle, after someone has confirmed that the bill matches what was ordered and received. A procure-to-pay journal entry is the set of postings that runs from order to payment, and many enterprise resource planning (ERP) systems, the software that runs a company’s accounting and purchasing, split the liability across two steps.

A typical sequence:

1. Purchase order: Records a commitment. NetSuite’s documentation states that a purchase order does not post to the general ledger.

2. Goods receipt: In systems that accrue on receipt, you record the goods received note by debiting inventory and crediting a clearing account. SAP calls this account GR/IR, and NetSuite calls it Accrued Purchases.

3. Three-way match: The purchase order, goods received note and supplier invoice are compared for quantity and price, within any tolerances you have set.

4. Invoice posting: The clearing account is debited and accounts payable is credited, which turns the receipt accrual into a supplier liability.

5. Approval and payment: The approver releases the invoice through the approval workflow, then you record payment by debiting accounts payable and crediting bank.

If the match fails, the invoice is held for payment rather than paid. SAP blocks invoices for payment when a variance exceeds its upper tolerance limit, and you must release them in a separate step. Oracle Fusion places holds that prevent payment until they are released. Systems without a receipt accrual post straight to the expense or inventory account at step 4.

Spendesk supports this stage with three-way matching that links the purchase order, invoice, and delivery note, flagging discrepancies for review before payment.

Bookkeeping rules and machine-learning suggestions pre-fill fields such as GL codes, the general ledger accounts each cost is posted to, and VAT, and your team reviews and confirms them before the journal entries are exported. Export behaviour varies by accounting connector.

You can see the full flow on the accounts payable automation page, or book a Spendesk demo to see how it would work with your own approval workflow and accounting system.

Period-end accruals and correcting accounts payable entries

When goods or services arrive before the invoice, accrue the cost at month-end so it lands in the right period. Debit the expense or inventory and credit accrued liabilities, using the receiving log for quantities and the purchase order for prices. AccountingTools advises keeping accruals out of the accounts payable account, which is meant for invoiced trade payables.

Here is the full cycle for GBP 10,000 of goods received on the last day of the month:

The reversal stops the cost from being counted twice once the invoice is posted through AP. If the estimate was off, the difference appears as a small true-up in the following month. Most accounting software has a reversing flag that posts the reversal automatically. Oracle’s Create Uninvoiced Receipt Accruals process, for instance, generates reversing journals for the next period. Unreversed accruals can leave old balances on the balance sheet.

To fix a wrong entry, post new entries rather than editing the original:

• Reverse the incorrect entry in full and re-post it correctly, leaving the error, the correction and its date visible.

• Post a single adjusting journal between the accounts affected, the approach ACCA’s study material describes.

Whichever you use, record why you made the correction. The Journal of Accountancy advises documenting the erroneous entry, the correction and an explanation of it.

Auditors pay close attention to this area. Both the standards of the US Public Company Accounting Oversight Board (PCAOB), the audit regulator for US listed companies, and the International Standards on Auditing (ISA) require auditors to test journal entries for signs of management override, where managers bypass controls. The revised ISA requirement applies to periods beginning from the end of 2026.

Restricting who can post to the general ledger, requiring dual authorisation (a second person approving) for manual entries, and reviewing journal entries periodically are examples of controls that PCAOB guidance lists. For UK companies, the Companies Act requires accounting records sufficient to show and explain the company’s transactions.

Accounts payable vs accrued payables vs notes payable

All three are liabilities, and they differ in the document behind them and in whether interest applies:

You record a cost as an accrual when the invoice is missing, then move the liability to accounts payable when the invoice arrives. That is why the reversal step matters for anyone working in AP. Notes payable belong to borrowing, not supplier credit, and only the part due within a year sits in current liabilities. If a balance comes with an interest rate and a signed note, it should not be in your AP subledger.

Frequently asked questions

How do I record reverse charge VAT on a supplier invoice?

The reverse charge makes you account for the VAT yourself, so you post both sides. For services bought from an overseas supplier, HMRC’s guidance on the place of supply of services tells you to credit your VAT account with output tax on the full value. You also debit it with the input tax you are entitled to. The entry is Dr Expense and Cr Accounts payable at the net amount. Add Dr Input VAT and Cr Output VAT for the calculated VAT. On the return, those amounts go in boxes 1, 4, 6, and 7. The domestic reverse charge for construction services uses the same pair of VAT entries. Under HMRC’s guidance on the domestic reverse charge procedure, the purchase value goes in box 7 and not box 6. HMRC has announced that from 1 April 2027 the overseas services reverse charge will apply only when the UK customer is VAT registered.

Does a successful three-way match post the AP entry automatically?

That depends on the system. In most ERPs you use matching results to determine whether to pay the invoice, and its ledger status is a separate question. Oracle Fusion records the expense and AP liability when you create accounting for a validated invoice, and validation is where matching holds get applied. SAP can post an invoice that breaches tolerance. It then blocks the invoice for payment, and you release it in a separate step. The next step is to check whether your setup posts held invoices to the ledger before you rely on AP balances at month-end.

How do I correct an AP entry from a period that is already closed?

Post the correction in the current open period and do not reopen or edit the closed one, unless the error is material to statements already issued. Under IAS 8, material prior period errors are corrected retrospectively by restating comparatives in the next set of financial statements. Smaller errors are usually corrected as a current-period adjustment with a clear explanation. Your auditors and finance team should agree on the materiality judgement before you post.

Can a trade payable due in more than 12 months still be current?

Yes, trade payables can stay in current liabilities even with extended terms, because IAS 1 treats them as current for the reason given under the debit and credit rules. The same applies to some operating accruals. Where the operating cycle cannot be clearly identified, IAS 1 assumes it is 12 months.