Question

list at least three expenses that would be recorded in a accounts payable?

Answer 1

The vendor invoices received by a company could involve the following:

A vendor invoice may be a bill for a repair or maintenance service. The vendor's credit terms allow the company to pay 30 days after the date of the service. Since repairs and maintenance do not create more assets, the cost of the service should be reported on the income statement as an expense. Under the accrual method of accounting the expense is reported in the accounting period in which the service occurred (not the period in which it is paid). Other examples of expenses include the cost of office expenses such as electricity and telephone, consulting, and more.

A vendor invoice may be a bill for the purchase of expensive equipment that will be used by the company for several years. The equipment will be recorded as an asset and will be reported in the company's balance sheet section property, plant and equipment. As the equipment is utilized, its cost will be moved from the balance sheet to the income statement account Depreciation Expense.

Another vendor invoice may be a billing for the cost of a service that the vendor will provide in the future, but the payment must be made in advance. A common example is an insurance company's invoice for the premiums covering the next six months of insurance on the company's automobiles. The company will initially debit the invoice amount to a current asset such as Prepaid Expenses. As the insurance expires, the cost will be allocated to Insurance Expense.

The three examples illustrate that some vendor invoices will be immediately recorded as expenses while other invoices are initially recorded as assets. The accounts payable staff needs to be instructed as to the proper accounts to be debited when vendor invoices are entered as credits to Accounts Payable. Generally, a cost that is used up and has no future economic value that can be measured is debited immediately to expense. Vendor invoices for property, plant and equipment are not expensed immediately. Instead, the cost is recorded in a balance sheet asset account and will be expensed in increments during the asset's useful life. Lastly, a prepaid expense is initially recorded in a current asset account and will be allocated to expense as the cost expires.