If you prepare your financial statements using the accrual method, but maintain your books on a daily basis using the cash method, you do not make entries to your accounts payable general ledger account during the accounting period. At the end of your accounting period, you need to make an adjusting entry in your general journal to bring your accounts payable balance up-to-date.
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As an example, assume that you keep your books on the cash basis, but your financial reporting and tax return are done on an accrual basis. You add up your accounts payable ledgers to that your total payables on December 31, 2004, are $2,650, consisting of merchandise purchases of $2,100, equipment repairs of $330, and an electric bill for $220. Your accounts payable balance on December 31, 2003, which is currently shown in your general ledger, was $1,500. You look at the adjusting entries for last year and see that at the end of 2003 you owed $1,000 for merchandise purchases, $180 for advertising, and $320 for a utility bill. You need to make the following adjusting entries to update your year-end accounts payable balance:
|
|
|
Debit |
Credit |
| Accounts payable |
1,500 |
|
| Purchases |
|
1,000 |
| Advertising |
|
180 |
| Utilities |
|
320 |
| To clear out 1/1/2004 accounts payable balance |
|
Debit |
Credit |
| Purchases |
2,100 |
|
| Repairs and maintenance |
330 |
|
| Utilities |
220 |
|
| Accounts payable |
|
2,650 |
| To set up 12/31/2004 accounts payable |
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