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As we all know, a payment is made when we purchase a good or service on credit or cash basis. In terms of a business, a vendor (supplier/creditor) is a person who sells goods to the company on a cash or credit basis with an agreement to receive the payment within a specified period.
This in turn affects the accounts payables as the vendors are the creditors of the company as well as considered a short-term liability and are recorded under the head of current liabilities in the balance sheet.
Journal entry for payment to the vendor
- At the time of purchase of goods
| Purchase a/c | Debit | Debit the increase in expense |
| To Vendor a/c | Credit | Credit the increase in liability |
(being goods purchased from the vendor on credit)
2. At the time of payment for purchased goods
| Vendor a/c | Debit | Debit the decrease in liability |
| To Cash a/c | Credit | Credit the decrease in asset |
(being payment made to the vendor)
Example
XYZ Ltd. purchased goods from a vendor amounting to 60,000 on a credit basis in May and agreed to make the due payment in July. The journal entries in the books of XYZ Ltd. are as follows:
| May | Purchase a/c | Debit | 60,000 |
| To Vendor a/c | Credit | 60,000 |
(being goods purchased on credit from the vendor)
| July | Vendor a/c | Debit | 60,000 |
| To Cash a/c | Credit | 60,000 |
(being payment made to the vendor in cash)
Note: In case the company purchases the goods from the vendor directly for cash then only the following entry shall be passed in the books of accounts;
| Purchase a/c | Debit | Debit the increase in expense |
| To Cash a/c | Credit | Credit the decrease in asset |
(being goods purchased from the vendor for cash)