Accounts Payable - Adding General Ledger Accounts | AccountingCoach (2024)

The general ledger accounts that are available for recording transactions are found in the company’s chart of accounts. For most businesses the general ledger accounts are listed in the following order:

  1. Balance sheet accounts
    • Asset accounts
    • Liability accounts
    • Stockholders’ or owner’s equity accounts
  2. Income statement accounts
    • Operating revenue accounts
    • Operating expense accounts
    • Nonoperating revenue and gain accounts
    • Nonoperating expense and loss accounts

Many systems will allow for each account to have subaccounts. Subaccounts allow for summarizing or combining amounts while also maintaining the detailed amounts.

When the existing accounts are not sufficient, new accounts should be added. In other words, meaningful financial reporting of transactions should not be limited to a preconceived list of accounts.

For more information and examples see Explanation of Chart of Accounts.

Invoice Credit Terms

The invoice terms indicate when an invoice becomes due and whether a discount may be taken if the invoice is paid sooner. The invoice terms also dictate the point at which ownership of goods will transfer from the seller to the buyer.

The following payment terms are some of the more common ones for businesses without inventories.

Net due upon receipt

If the vendor’s terms are Net due upon receipt, the invoice amount is due immediately. (Of course, you should verify that the invoice is valid and accurate before it is entered for payment.)

Net 30 days

When the vendor invoice states Net 30 days, the amount of the invoice (minus any returns or allowances) is due 30 days from the date of the invoice. For example, if a vendor invoice for $1,000 is dated June 1 and the company is granted a $100 allowance, the net amount of $900 should be paid by July 1. (If there were no allowance, the company should remit $1,000 by July 1.)

1/10, n/30

When a vendor invoice includes terms of 1/10, n/30, the “1” represents 1% of the amount owed, the “10” represents 10 days, the “n” represents the word net, and the “30” represents 30 days. The terms 1/10, n/30 indicate that the buyer may take an early payment discount of 1% of the amount owed if the amount owed is remitted within 10 days instead of the normal 30 days. In other words, the buyer can choose either of the following:

  • Pay within 10 days and deduct 1% of the net amount owed (the invoice amount minus any authorized returns and/or allowances), or
  • Pay in 30 days and take no discount.

To illustrate1/10, n/30, let’s assume that a vendor invoice for $1,000 is dated June 1 and the buyer does not return any of the goods. Since there are no returns, the net amount of the purchase is the full $1,000 and the buyer can remit either of the following amounts:

  • If paying by June 10, the amount due to the vendor is $990. [The net amount of $1,000 minus the $10 early payment discount (which is 1% of $1,000).]
  • If paying by July 1, the net amount of $1,000 is due.

If the buyer was given an allowance of $100, the net amount is $900. In that case the buyer can remit either of the following amounts:

  • If paying by June 10, the amount due to the vendor is $891. [The net amount of $900 minus $9 (which is 1% of $900).]
  • If paying by July 1, the net amount of $900 is due.

2/10, n/30

If the vendor’s invoice has terms of 2/10, n/30, the “2” represents 2%, the “10” represents 10 days, the “n” represents the word net and the “30” represents 30 days. This means that the buyer can take an early payment discount of 2% of the amount owed if the amount is remitted within 10 days instead of the customary 30 days. In other words, the buyer can choose either of the following:

  • Pay within 10 days and deduct 2% of the net amount (invoice amount minus any authorized returns and/or allowances), or
  • Pay the full amount in 30 days with no discount.

To illustrate 2/10, n/30, assume that a vendor’s invoice for $1,000 is dated June 1 and the vendor has granted the buyer an allowance of $100. This means the net amount is $900 and that only $900 will be eligible for the early payment discount. Hence, the buyer can remit either of the following amounts:

  • If paying by June 10, the amount due to the vendor is $882. [The net amount of $900 minus $18 (which is 2% of $900).]
  • If paying by July 1, the net amount of $900 is due.

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Accounts Payable - Adding General Ledger Accounts | AccountingCoach (2024)

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