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Debits and Credits

 

The terms Debit and Credit refer to the General Ledger effects of transactions on the Accounts Payable Subledger Control Account.

 

A common Payables transaction is a Supplier’s Invoice. The General Ledger effect of a typical Invoice transaction is to Credit the Accounts Payable Subledger Control Account for the Amount of that Invoice and to Debit various other Accounts such as Expense Accounts (or Asset Accounts for an Inventory purchase for example). The total Debits equal the total Credits.

 

Another common Payables transaction is a Payment to a Supplier. The General Ledger effect of a typical Payment transaction is to Debit the Accounts Payable Subledger Control Account and to Credit the Bank Account. If a Cash Discount was taken, then the Cash Discount Earned Account would also be Credited. As always, the total Debits equal the total Credits.

 

Complete details of the General Ledger distribution of Payables transactions are stored in the transaction detail table. This includes the Debit or Credit to the applicable Accounts Payable Subledger Control Account. These amounts are always displayed and printed using separate columns for Debits and Credits. Internally the system uses a single amount field to store these values rather than use two separate fields. That amount field uses the standard convention where positive values represent Debits and negative values represent Credits. However, when these amounts are displayed or printed they are shown in separate columns for Debits and Credits.

 

The transaction table stores all the other information about the transaction, including the original Accounts Payables Amount and the current Balance of that transaction. Common practice when displaying or printing these Amounts and Balances is to use a single column rather than separate columns for Debits and Credit. Common practice in Accounts Payable is also to display Supplier Invoices as positive values (even though they are actually Credits to Accounts Payable in the General Ledger) and to display Payments as negative values (even though they are actually Debits to Accounts Payable in the General Ledger).

 

From the perspective of presenting and processing transactions there are basically only two kinds of transactions: those which are a Credit to the Payables Subledger and those which are a Debit to the Payables Subledger.

 

The most typical Credit transaction is a Supplier’s Invoice and the most typical Debit transaction is a Check we issue to a Supplier. For readability this guide often uses the term Invoices to refer to any Credit transactions and the term Payments or Checks to refer to any Debit transactions.

 

Charges and Payments

A Supplier’s Invoice is a typical Credit and a Check we issue to a Supplier is a typical Debit. This is the opposite of Accounts Receivable. The term "Credit" also has a common usage meaning such as "the Supplier credited us $200.00 off their last invoice". This dual usage of the term Credit can be confusing for some people. In Accounts Receivable there are various forms with tabsheets titled Invoices (showing Invoices and equivalents) and Payments and Credits (showing Payments and Credits and equivalents).

 

In the standard Accounts Payable we title a tabsheet showing Invoices and equivalents as Invoices and title a tabsheet showing Checks and Debit Memos and equivalents as Checks and Debit Memos. In transaction entry there are separate tabsheets for Manual Checks and for Debit Memos.