Accounts Payable

Use the Accounts Payable account whenever you purchase something on credit, or promise to pay back later.

Scenario: On March 16th, you purchase 100 lemons from your vendor for $100 on credit.

The blue underlined text signals...

• We are purchas[ing] 100 lemons. ➡️ This will be stored as Inventory for our lemonade stand.
• We're making this purchase on credit. ➡️ This means we'll use Accounts Payable.

The reason is...

• We are obtaining (+) 100 lemons, which serve as inventory for our lemonade stand.
• This is represented through Inventory.
• Which is an asset account, and therefore has a normal debit balance.
• So, to increase it by $100, we'll debit it.

The reason is...

• We now owe (+) money to our vendor for the lemons, we're liable to pay them.
• This is represented through Accounts Payable.
• Which is a liability account, and therefore has a normal credit balance.
• So, to increase it by $100, we'll credit it.