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ACCA Applied Knowledge · Financial Accounting · General ledger accounts and journal entries

A business pays a supplier, Brandt Ltd, $2,400 by bank transfer to settle an amount previously recorded as owing. Which double entry records this payment?

Debit trade payables and credit bank for $2,400. Paying the supplier reduces the liability owed, which is a debit, and reduces the cash held at the bank, which is a credit. The purchase was already recorded earlier, so no purchases entry arises.

  1. ADebit Trade payables $2,400; Credit Bank $2,400Correct
  2. BDebit Bank $2,400; Credit Trade payables $2,400
  3. CDebit Purchases $2,400; Credit Bank $2,400
  4. DDebit Trade payables $2,400; Credit Purchases $2,400

Explanation

Paying a supplier reduces the liability, which is a debit to trade payables, and reduces the bank asset, which is a credit to bank. Option B reverses the entry. Option C would double count the purchase, which was already recorded when the goods were received.

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