Is accounts payable a debit or credit?

Few areas of accounting feel more daunting than managing debt and credit—especially if you’re new to business.

One essential tool for tracking these financial movements is the accounts payable ledger, which you’ll need to understand for accurate bookkeeping and financial clarity.

To properly record these transactions, you need to know whether the accounts payable balance behaves as a debit or a credit.

A clear understanding will help you track obligations and avoid costly errors.

This article clarifies these concepts, providing practical examples and simple explanations so your credit operations never get out of hand.

Here’s what we cover:

What are debits and credits?

To understand accounts payable, you first need to understand the basics of debits and credits.

This is because accounts payable is an example of a liability account – it tracks amounts your business owes to suppliers, because they correspond to items you’re buying on credit.

When you record a new payable, you credit the account to reflect the increased liability.

When you make a payment, you debit the account, reducing the record of what you owe.

Debits and credits aren’t inherently “good” or “bad” – they simply reflect how you use credit strategically to grow.

For example, the increased liability of a new payable really means you’re investing in your business.

You are purchasing inventory, services, or equipment that will help generate revenue.

You shouldn’t just view that liability as a matter of owing money.

What are debits?

A debit is a monetary entry that increases asset accounts and expense accounts.

Conversely, debits decrease liability, equity, and revenue accounts.

 Think of it this way: a debit adds value to what your business owns (assets) or records costs (expenses), while it reduces what your business owes (liabilities) or its equity and revenue.

In the context of accounts payable, a debit occurs when you pay off a portion of what you owe, directly reducing your liability account.

For example, if you pay $500 of a $1,000 invoice, you would debit your accounts payable account by $500, decreasing the amount you owe.

What are credits?

A credit is the opposite – it’s a monetary entry that increases liability, equity, and revenue accounts.

On the other hand, credits decrease asset and expense accounts.

A credit adds to what your business owes (liabilities), increases its equity or revenue, and reduces what it owns (assets) or its costs (expenses).

When you receive an invoice from a supplier, you credit your accounts payable account, directly increasing the amount you owe.

For example, if you receive a $1,000 invoice for office supplies, your accounts payable account increases by $1,000. At the same time, you debit the office supplies expense account by $1,000, reflecting the cost incurred.

Debits and credits in double-entry accounting

Double-entry accounting is the cornerstone of modern bookkeeping.

It holds that every financial transaction affects at least two accounts, with one account being debited and the other credited.

This system ensures that the accounting equation (Assets = Liabilities + Equity) always remains balanced.

Debits and credits are therefore fundamental to double-entry bookkeeping, representing opposite movements in your accounts.

A debit increases asset accounts and decreases liability and equity accounts. Conversely, a credit increases liability and equity accounts, while decreasing asset accounts.

This means that for every transaction, the total debits must equal the total credits, keeping your books balanced.

This method helps to maintain accuracy and provides a comprehensive view of a business’s financial health by providing a system of checks and balances.

Is accounts payable a credit or debit?

As long as there is a balance in accounts payable, it will be a credit.

This is because accounts payable is a liability account, meaning that under standard accounting practices its balance represents money you owe to suppliers.

This is also known as a normal credit balance, as liabilities typically increase with credits and decrease with debits.

So, when people ask, “does accounts payable increase with a debit?”, the answer is no – a debit to accounts payable decreases the balance, reflecting a payment you’ve made.

In practical terms, when you receive a bill from a supplier, you credit accounts payable, increasing the amount you owe. And when you pay a bill, you debit accounts payable, decreasing the amount you owe.

Is accounts payable a debit or credit in trial balance?

The trial balance is a document summarizing the general ledger.

It helps detect errors by ensuring that total debits equal total credits, and confirms that the general ledger is valid as the source document for financial statements at the end of the year.

In the trial balance, accounts payable appears as a credit. Again, this is because it is a liability account and normally holds a credit balance.

Accounts payable vs. accounts receivable: Debit or credit.

We’ve seen that accounts payable is a credit and a liability because it represents money your business owes to suppliers.

In contrast, accounts receivable tracks money owed to your business by customers.

Since this represents future income and adds to your company’s total value, it is classified as an asset.

Each transaction follows double-entry bookkeeping, where one account is debited and another is credited.

In this way, accounts payable and accounts receivable serve opposite functions.

Accounts receivable is considered a debit because assets increase with debits, representing money to be collected in the future. When a client owes you money, you record a debit in accounts receivable to track the expected payment.

Accounts payable vs. bills payable vs. loans payable

Alongside accounts payable, there are two other common liability accounts representing amounts owed: bills payable and loans payable.

All three differ in the nature of the agreements they represent.

Bills payable are formal written promises, usually based on promissory notes, in which a business has agreed to pay a specific amount by a set date.

These documents play a crucial role in bookkeeping, ensuring there are no discrepancies and helping to forecast future payment obligations.

Bills payable amounts are entered in the AP category on the general ledger, solidifying their classification as credit accounts.

The loans payable account refers to formal loans from financial institutions, typically with defined repayment schedules and interest, which are legally binding agreements.

When a loan is approved, cash is debited (increasing assets), and the loans payable account is credited (increasing liabilities).

When the loan is repaid, the loans payable account is debited (decreasing liabilities), and cash is credited (decreasing assets).

The credits in accounts payable differ in that they arise from standard business transactions, typically short-term obligations to suppliers for goods or services.

They are based on i) invoices, which are requests for payment, or ii) purchase orders (POs), which confirm authorizations to purchase.

Invoices and POs indicate an intention to pay within typical business terms, but they don’t constitute legally binding promises in the same way that promissory notes and loan agreements do.

Are bills payable and loans payable debits or credits?

Remember, like accounts payable, bills payable and loans payable are liability accounts – and liabilities are credits.

Recording accounts payable, with examples

To record accounts payable, you’ll use double-entry bookkeeping, ensuring that every transaction is recorded with offsetting debit and credit entries to maintain balance in the general ledger.

Initial Recording (when receiving goods/services)

When you receive an invoice, you’ll credit accounts payable (increasing the liability) and debit the relevant expense or asset account (increasing the expense or asset).

Example:

You receive a $500 invoice for marketing services.

You would:

• debit “Marketing Expenses” by $500 (increasing the expense).
• credit “Accounts Payable” by $500 (increasing the liability).

Payment Recording (when paying the bill)

When you pay that invoice, you would:

• debit “Accounts Payable” by $500 (reducing the liability).
• credit “Cash” or “Bank Account” by $500 (reducing the asset).

It is important to remember that even though cash is leaving the business, the credit entry is used because that’s how reductions in asset accounts are recorded in accounting.

Debits increase assets and decrease liabilities, while credits decrease assets and increase liabilities.

Example:

When you pay that invoice, you would:

• debit “Accounts Payable” by $500
• credit “Cash” or “Bank Account” by $500.

When your books are always balanced this accurately reflects that your financial obligations are in order.

Automating accounts payable with software

Manual accounts payable processes can be time-consuming because they often depend on paper-based approvals.

They are also prone to errors due to the large volume of data that must be entered manually, and because they lack real-time visibility into outstanding obligations.

Accounts payable software solves these issues by automating many tasks.

For example, it accurately extracts the right information during invoice processing, and instantly routes invoices through pre-assigned approval workflows.

Automated payment scheduling is another bonus, where software saves you time and reduces the risk of errors.

Using software can also make it easier for you to track and analyze spending – an aspect that affects many areas of financial management, not just credit usage.

Accurate control of spending is essential for maintaining cash flow, optimizing inventory management, and ultimately ensuring profitability.