Bills Payable

Meaning of Bills Payable

Bills Payable (B/P) 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 B/P.

Bills Payable Journal Entry

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

Particulars                                                                               Debit                Credit

Purchases                                                                                     ****

Bills Payable                                                                                                          ****

The B/P will reflect as a liability in the balance sheet under the head Bills Payable.

The journal entry for bill payable when the supplier makes cash payment:

Particulars                                                                               Debit                Credit

Bills Payable                                                                                 ****

Cash                                                                                                                       ****

The amount paid will reduce from the B/P head in the balance sheet.Bills Payable

Bills Payable vs. Accounts Payable

Often people use these terms 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 payable for credit purchase of goods and services. It is the unpaid vendor invoices.

Bills Payable and Bills Receivables

Bills Receivable and payable are exactly opposite of each other. Former is the asset of the company. Like B/P, 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 paid on a future date and such bill is called 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 done on a certain future date).

References:

Last updated on : August 31st, 2017
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