Trade Payables Accounts
We will learn to identify and interpret transactions that are recorded in the trade payables account, how to prepare the account and to apply trade and cash discounts correctly.
Related Lessons:
Trade Payables
Trade payables are suppliers who sold goods or provide services to the business on credit.
As payment to these suppliers are to be made at a later date, trade payables are current liability to the business.
When accounting for purchases from credit suppliers and making payments to them, we must calculate and apply the correct trade discount and cash discount as follows:
Trade discount:
Purchases are recorded at net amount, which is list price minus trade discount.
Cash discount:
When a cash discount is received, the amount payable is the amount owing to the trade payable less the cash discount. The cash discount received is recorded as discount received.
Refer to the lesson on trade and cash discount for a deeper understanding of how to calculate and account for them.
Preparing the Trade Payables Account
The following transactions are recorded in the trade payables account:
- Credit Purchase as Inventory
- Undercharging as Inventory
- Return of goods as Inventory
- Payment made as Cash at bank
- Discount received as Discount received
- Late payment fees as Interest expense