Accounting for Expense Payable
We will learn when a business records expense as incurred and when expense is considered payable. We will also learn how to record expense in the journal, including adjustments for expense payable, and how to interpret an expense account.
Related Lessons:
Determining Expense Payable
Expense is regarded as incurred when the benefit has been used, regardless of whether payment is made.
Expense is regarded as owing or payable when the service was used but payment was not made. Therefore, expense payable is a current liability to the business.
To calculate expense payable:
- Calculate total expense incurred for the accounting period.
- Determine the total amount paid for the accounting period.
- Amount incurred in excess of the total amount paid is regarded as expense payable.
Adjusting for Expense Payable Brought Forward
Expense owing in the previous accounting period is carried forward to the next accounting period for payment to be made. At this point, the amount is no longer treated as a current liability.
Therefore, the amount is transferred from the current liability account to the expense account so that the total expenses for the year are reduced, as this amount was not actually an expense of the current period.
Dr Expense payable
Cr Expense
Recording Expense Payable
1. To record expense payable brought forward
Dr Expense payable
Cr Expense
2. To record expense paid
Dr Expense
Cr Cash at bank
3. To record expense payable for the current period
Dr Expense
Cr Expense payable
4. To close the expense account
Dr Income summary
Cr Expense
Interpreting Expense Account
The following transactions in the expense account are interpreted as such:
Expense payable on the first day of the accounting period
Refers to expense owed in the previous accounting period, payment to be made in the current period.
Cash at bank
Refers to expense paid via the bank account
Expense payable on the last day of the accounting period
Refers to expense owing and are to be paid in the next accounting period
Income summary
Refers to total expense incurred in the current accounting period
Expense Payable in the Financial Statements
Amount transferred from the expense account to the Income Summary account is recorded in the Statement of financial performance as an Expense.
The amount of expense payable at the end of the current accounting period is recorded in the Statement of financial position as a Current Liability.