The accounting distributions for an invoice payment typically debit expense or asset accounts and credit your cash or cash clearing account. When you post payments, Payables may also create distributions for discount taken and foreign currency exchange gain or loss.
Payables uses the payment date as the accounting date for your expense and cash journal entries so that journal entry batches balance.
The following examples are identical to the accrual basis examples in Figure 1 - 13, except they assume you use cash basis accounting. Note that Payables does not record any liability transactions when you use the cash basis accounting method.
You enter and approve an invoice for $100 with payment terms that allow you to take a 10% discount on the invoice if paid within 10 days. When you post the invoice, Payables does not record any invoice transactions. If you initiate posting, Payables will not record any invoice transactions.
You pay the invoice and take the discount. When you post the payment, Payables records an expense and cash transaction along with the discount transaction.
You enter and approve a $100 invoice and a $25 prepayment. If you initiate posting, Payables will not record any invoice or prepayment transactions.
You then pay the prepayment and apply the prepayment to the invoice, reducing the amount due on the invoice. You pay the remaining amount of the invoice and initiate posting. The resulting prepayment journal entry credits your cash account and debits the prepayment account for the amount of the prepayment. The invoice payment journal entry credits your cash account for the reduced invoice amount and debits your expense account.