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ACCA Applied Knowledge · Financial Accounting · Double-entry bookkeeping principles including the maintenance of accounting records

Kestrel Ltd pays a supplier $1,200 by bank transfer for goods bought on credit last month. Which double entry records this payment?

Debit trade payables and credit bank for $1,200. The payment reduces the amount owed to the supplier, which is a debit to the liability, and reduces the bank balance, which is a credit. Purchases were already recorded when the goods were bought on credit.

  1. ADebit Trade payables $1,200; Credit Bank $1,200Correct
  2. BDebit Bank $1,200; Credit Trade payables $1,200
  3. CDebit Purchases $1,200; Credit Bank $1,200
  4. DDebit Trade payables $1,200; Credit Cash sales $1,200

Explanation

Paying a credit supplier reduces the liability, so trade payables is debited. Money leaves the bank, so bank is credited. Debiting purchases would double count the expense, which was already recorded when the goods were bought.

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