Bills Payable

Meaning of Bills Payable

Bills Payable is a liability document which shows the indebtedness of an individual, an organization, a bank, etc. When an individual or an organization makes a credit purchase of any good or service, the bill drawn by the party consuming goods or services shall be termed as bill payable. Similarly for a bank, it shall be the funds which it borrowed from other banks.

Examples of Bills Payable

When an individual has payment due for telephone bill, electricity bill, water
bill, etc., the bills are bill payable for him. For a company, the bill drawn by a mechanic for repairs of machinery is an example of bills payable.

Bills Payable Entry

The books of accounts are prepared following double entry accounting system. The journal entry for bills payable when goods or services are purchased on credit is:

Particulars                                                                               Debit                Credit

Purchases                                                                                     ****

Bills Payable                                                                                                          ****

The bills payable will reflect as a liability in the balance sheet under the head Bills Payable.

The journal entry for bill payable when cash payment is made to the supplier is:

Particulars                                                                               Debit                Credit

Bills Payable                                                                                 ****

Cash                                                                                                                       ****

The amount paid will be deducted from the Bills Payable head in the balance sheet.Bills Payable

Bills Payable vs. Accounts Payable

Bills Payable and Accounts Payable are often used interchangeably. Both represent a monetary obligation to pay to an outside party. In spite of being similar, there is one difference which separates the two. Accounts payable are the current liabilities of the business. They are the unsettled payments of the business. On the other hand, bills payable reflects the amount to be paid for credit purchase of goods and services. It is the unpaid vendor invoices.

Bills Payable and Bills Receivables

Bills Payable and Bills Receivable are exactly opposite of each other. Bills receivables are the asset of the company. Like bills payable, it is also a negotiable instrument with the evidence of debt that is payable to the holder. If a company has provided credit sales or services to anyone, then it will write a bill on the debtor of amount that is payable in the future. Such bill is termed as bills receivable.

These bills appear on the asset side of the balance sheet. On the other hand, bills receivables are drawn when a vendor or seller makes any credit sale to the business. The amount mentioned in the bill is to be paid on a future date and such bill is termed as bills payable.

Conclusion

It forms an important aspect of accountancy that falls under short term liabilities. On the basis of such bills, the company determines its creditors (i.e. payments for goods to be done on a certain future date).

References:

What’s your view on this? Share it in comments below.

Leave a Reply