When you post transactions, journal entries are created in general ledger. The journal entries that are created vary depending on transaction type.
The following sections include information about the journal entries associated with Accounts Payable transactions.
Invoices
On the G/L Transactions report, invoices are assigned source code AP-IN; interest invoices are assigned the source code AP-IT.
Posted invoice transactions debit the general ledger inventory account or expense account you specify with each invoice detail (either directly or using a distribution code) and credit the vendor's Payables Control account.
| G/L Account | Debit | Credit |
|---|---|---|
| Inventory (or Expense) | X | |
| Retainage Control | X | |
| Payables Control | X |
The entry for a retainage invoice is:
| G/L Account | Debit | Credit |
|---|---|---|
| Retainage Control | X | |
| Payables Control | X |
Credit Notes
Credit notes are assigned source code AP-CR on the G/L Transactions report.
Credit note transactions credit the general ledger account (the inventory account in this example) and debit (decrease) the vendor's Payables Control account.
| G/L Account | Debit | Credit |
|---|---|---|
| Payables Control | X | |
| Retainage Control | X | |
| Inventory (or Expense) | X |
Debit Notes
Debit notes are assigned source code AP-DB on the G/L Transactions report.
Debit note transactions debit the general ledger account represented by the distribution code (inventory in this example) and credit (increase) the vendor's Payables Control account.
| G/L Account | Debit | Credit |
|---|---|---|
| Inventory | X | |
| Retainage Control | X | |
| Payables Control | X |
Payments
Payments are assigned source code AP-PY on the G/L Transactions report.
Payments debit the vendor's Payables Control account, credit the Bank account specified for the payment batch, and credit the Payment Discounts account (if a discount is taken). Discounts are assigned the source code AP-ED (for earned discount).
| G/L Account | Debit | Credit |
|---|---|---|
| Payables Control | X | |
| Bank | X | |
| Payment Discounts | X |
Prepayments
Prepayments are assigned source code AP-PI on the G/L Transactions report.
Prepayments debit the Prepayment account and credit the Bank account for the payment batch. When you apply the prepayment later, Accounts Payable will credit the prepayment account and debit the expense or asset account that you specify.
| G/L Account | Debit | Credit |
|---|---|---|
| Prepayments | X | |
| Bank | X |
Miscellaneous Payments
Miscellaneous Payments are assigned source code AP-PY on the G/L Transactions report.
Miscellaneous cash payments debit the general ledger account you specify on the Payment Detail tab of the Payment Entry screen and credit the Bank account for the payment batch.
| G/L Account | Debit | Credit |
|---|---|---|
| Misc. Expense | X | |
| Bank | X |
Adjustments
Adjustments are assigned source code AP-AD on the G/L Transactions report.
An adjustment entered as a positive number credits the vendor account (increases the payables balance) and debits the general ledger account you specify when you enter the adjustment.
For example, the following adjustment was entered as a positive adjustment to the inventory account:
| G/L Account | Debit | Credit |
|---|---|---|
| Inventory | X | |
| Payables Control | X |
An adjustment entered as a negative amount debits the vendor account and credits the general ledger account you specify when you enter the adjustment.
Exchange Gains and Losses
On the G/L Transactions report, exchange gains or losses are assigned source code AP‑GL (for "gain/loss").
In a multicurrency system, exchange gains or losses result when you revalue or settle an invoice using an exchange rate that is different from the rate currently used by the invoice.
During Revaluation
Accounts Payable creates entries for General Ledger when you revalue an invoice in a source (non-functional) currency at an exchange rate that is different from the rate currently used by the invoice.
The following transaction registers a loss, because changes in the exchange rate have increased the value of the vendor invoice:
| G/L Account | Debit | Credit |
|---|---|---|
| Exchange (or Realized) loss | X | |
| Payables Control | X |
If you use the Realized and Unrealized Gain/Loss accounting method for your company, exchange gains and losses are considered unrealized until the document is paid. Revaluation sends unrealized gain and loss transactions to General Ledger as reversing transactions (meaning they are automatically reversed at the beginning of the next fiscal period).
The following entry shows how the unrealized loss is reversed:
| G/L Account | Debit | Credit |
|---|---|---|
| Payables Control | X | |
| Exchange (or Realized) loss | X |
When you print the Vendor Transactions report for the period in which you post the reversing revaluation transaction, both transactions appear for the vendor. Their net effect on the account balance is zero.
If you use the Recognized Gain/Loss accounting method, revaluation exchange gains and losses are not reversed.
Arising on Settlement
This type of exchange gain or loss arises when you settle an invoice using an exchange rate that is different from the rate currently used by the invoice.
If posting changes the value of an invoice (for example, through partial payment, full payment, or credit note), Accounts Payable calculates the gain or loss for the portion of the invoice that was changed by the posting, and creates gain or loss transactions for the general ledger accounts.
The following transaction registers a gain, because the exchange rate on settling reduced the value of the vendor invoice:
| G/L Account | Debit | Credit |
|---|---|---|
| Payables Control | X | |
| Exchange (or Realized) gain | X |
Note: Credit notes and debit notes do not affect gains or losses if they are issued at the exchange rate of the original invoice. However, they do generate gains or losses if they are issued at a different rate.