Key Concepts
The Trade payables — [Supplier] account is a liability, so it normally carries a credit balance. In a liability account, a credit entry increases the amount owed and a debit entry decreases it. Reading its entries means knowing what each side represents.
Every transaction is recorded in two accounts — that is double entry. To interpret an account, check two things for each entry: whether it is a debit or a credit in this account, and the Particulars column, which names the other account in the entry. Together they tell you what the entry was for.
| Entry side | What it means |
|---|---|
| Credit | The payable increases — a credit purchase (Particulars: Inventory, or a non-current asset) |
| Debit | The payable decreases — a payment (Particulars: Cash at bank / Cash in hand), a return of goods (Particulars: Inventory), or a cash discount received (Particulars: Discount received) |
A trade payable is the opposite of a trade receivable.A receivable (asset) normally carries a debit balance, where a debit entry increases it. A payable (liability) is the reverse: a credit entry increases what you owe, and a debit entry decreases it.
Read the Particulars column — it names the other account. That tells you the real transaction (e.g. "Inventory" on the credit side = bought goods on credit; "Cash at bank" on the debit side = paid the supplier). A credit increases the payable; a debit decreases it.
| Date | Particulars | Dr ($) | Cr ($) | Balance ($) |
|---|---|---|---|---|
| 20X7 | ||||
| 1 Jun | Balance b/d | 3,000 Cr | ||
| 5 Jun | Inventory | 4,600 | 7,600 Cr | |
| 12 Jun | Cash at bank | 2,850 | 4,750 Cr | |
| 12 Jun | Discount received | 150 | 4,600 Cr | |
| 20 Jun | Inventory | 500 | 4,100 Cr | |
| 1 Jul | Balance b/d | 4,100 Cr |
- 5 June: Tropical Trading bought goods worth $4,600 on credit from Boon Seng.
- 12 June: Tropical Trading paid Boon Seng $2,850 by cheque and received a cash discount of $150.
- 20 June: Tropical Trading returned goods worth $500, previously bought on credit, to Boon Seng.
The $2,850 cash payment and $150 discount together make up the $3,000 settled on 12 June.
Rate = $150 ÷ ($150 + $2,850) × 100% = $150 ÷ $3,000 × 100% = 5%.
The closing balance is $4,100 Cr — this is the amount Tropical Trading still owes Boon Seng, shown as a current liability on the Statement of Financial Position.
Reading the credit balance as a debit. A trade payable is a liability with a credit balance. A credit entry increases it; a debit entry decreases it — the opposite of an asset.
Calling a debit entry a "purchase". In this account a debit reduces the payable — it is a payment, a return, or a discount received, never a new purchase.
Using the wrong base for the discount rate. The rate is the discount ÷ the total amount settled (discount + cash paid), not the discount ÷ the cash paid.