One of the most used terms in accounting is bills payable journal entry. It is the record a business keeps when it agrees to pay someone later. So, the answer to the topic is: A bills payable journal entry is the accounting record passed when a business accepts a bill and agrees to pay a fixed amount on a future date. This helps in keeping track of what the business owes to others.It plays a key role in managing business debts. Companies often purchase goods on credit. When they agree to pay on a fixed date using a written promise, they issue a bill payable. Recording this promise properly in books is very important.
Meaning of Bills Payable
Bills payable is a promise to pay a certain amount to someone on a fixed future date. The business accepts this promise in writing. This document is called a bill of exchange.When a business purchases goods or services but does not pay right away, it can accept a bill of exchange. The business then becomes the acceptor of the bill and agrees to pay the amount on a certain date. This accepted bill is called a bill payable for the business.In accounting, bills payable are shown as liabilities. This is because they represent money the business owes to others. These bills have fixed amounts and due dates, which help both parties in planning their finances. Bills payable are often used in trade between businesses, where trust and credit terms are important.
Features of Bills Payable
- It is a written promise to pay.
- It has a specific due date.
- It mentions the fixed amount to be paid.
- The person who accepts the bill has to pay it.
Importance of Bills Payable
- Builds trust between buyers and sellers.
- Helps in keeping accurate accounts.
- Useful for getting goods or services on credit.
- Helps in managing cash flow.
Businesses use bills payable for many reasons. It supports smooth operations, especially when ready cash is not available. Learning this concept helps students and small business owners in understanding credit transactions better.
Bills Payable Journal Entry
Recording a bills payable journal entry correctly is important. It helps in showing the real liability of the business. The journal entry is passed when the business accepts the bill, and again when the payment is made. A journal entry is the first step in the accounting cycle. It shows how a transaction affects the accounts. In the case of bills payable, two accounts are mainly involved:
- Creditor Account – the person to whom money is owed.
- Bills Payable Account – the account used to record the accepted bill.
Here’s the standard format:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| dd/mm/yyyy | Name of creditor A/c Dr. To Bills Payable A/c(Being bill accepted) | Amount | Amount |
Later, when the bill is paid:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| dd/mm/yyyy | Bills Payable A/c Dr. To Bank A/c | Amount | Amount |
Important Points:
- Bills Payable is a liability account, so it is always credited when created.
- It is debited only when the business pays the amount.
- Do not confuse it with bills receivable, which is an asset.
Relevance to ACCA Syllabus
In ACCA, understanding how to record liabilities like bills payable journal entries is part of Financial Accounting (FA) and Financial Reporting (FR). These topics fall under recording transactions, journal entries, and liability management. Students must know how liabilities are treated, recognized, and measured to pass exams like FA, FR, and SBR.
Bills Payable Journal Entry ACCA Questions
Q1: When a business accepts a bill for future payment, which account is credited?
A) Bank Account
B) Bills Payable Account
C) Debtor Account
D) Cash Account
Ans: B) Bills Payable Account
Q2: Where is Bills Payable shown in the financial statements?
A) Non-current assets
B) Current liabilities
C) Operating revenue
D) Equity
Ans: B) Current liabilities
Q3: What is the correct journal entry for accepting a bill for ₹10,000 from a supplier?
A) Bank A/c Dr. ₹10,000; To Bills Payable A/c ₹10,000
B) Bills Payable A/c Dr. ₹10,000; To Cash A/c ₹10,000
C) Supplier A/c Dr. ₹10,000; To Bills Payable A/c ₹10,000
D) Purchases A/c Dr. ₹10,000; To Supplier A/c ₹10,000
Ans: C) Supplier A/c Dr. ₹10,000; To Bills Payable A/c ₹10,000
Q4: What type of account is the Bills Payable Account?
A) Asset
B) Liability
C) Revenue
D) Expense
Ans: B) Liability
Relevance to US CMA Syllabus
The US CMA syllabus includes financial accounting and reporting, where journal entries for liabilities like bills payable are essential. In Part 1, students must understand how to recognize, record, and analyze liabilities, and bills payable fall under short-term liabilities management.
Bills Payable Journal Entry US CMA Questions
Q1: Which of the following best describes the nature of bills payable?
A) Deferred revenue
B) Long-term liability
C) Written promise to pay a creditor
D) Customer advance
Ans: C) Written promise to pay a creditor
Q2: What happens in the books when the bill is honored on the due date?
A) Bills Payable A/c Dr.; To Bank A/c
B) Bank A/c Dr.; To Bills Payable A/c
C) Bills Receivable A/c Dr.; To Cash A/c
D) No entry required
Ans: A) Bills Payable A/c Dr.; To Bank A/c
Q3: How do you record bills payable at the time of acceptance?
A) Debit bank; Credit bills payable
B) Debit creditor; Credit bills payable
C) Debit bills payable; Credit supplier
D) Debit purchases; Credit bills payable
Ans: B) Debit creditor; Credit bills payable
Q4: Which financial statement shows bills payable?
A) Statement of Retained Earnings
B) Income Statement
C) Balance Sheet
D) Statement of Cash Flows
Ans: C) Balance Sheet
Relevance to CFA Syllabus
The CFA curriculum (especially Level I) emphasizes financial statement analysis, where accurate liability recording like bills payable is critical. Candidates must evaluate the company’s financial health using proper understanding of current liabilities and working capital management.
Bills Payable Journal Entry CFA Questions
Q1: Bills payable affects which part of working capital?
A) Inventory
B) Accounts Receivable
C) Accounts Payable
D) Current Liabilities
Ans: D) Current Liabilities
Q2: If a company delays payment by accepting a bill, what is the impact on cash flow from operations?
A) Increase
B) Decrease
C) No impact
D) Only affects financing activities
Ans: A) Increase
Q3: What happens to liabilities when a bill payable is created?
A) Liabilities increase
B) Assets increase
C) Equity increases
D) Revenues increase
Ans: A) Liabilities increase
Q4: Why is proper classification of bills payable important in financial analysis?
A) To inflate asset base
B) To manipulate income
C) To reflect short-term obligations
D) To increase goodwill
Ans: C) To reflect short-term obligations
Relevance to US CPA Syllabus
For the US CPA exam, particularly in the FAR section, correct journal entries are essential. Bills payable are covered under current liabilities and short-term obligations. Candidates must understand recognition, measurement, and presentation in accordance with GAAP.
Bills Payable Journal Entry US CPA Questions
Q1: What is the journal entry when the company accepts a bill from a vendor?
A) Accounts Payable A/c Dr.; To Cash A/c
B) Accounts Payable A/c Dr.; To Notes Payable A/c
C) Vendor A/c Dr.; To Notes Payable A/c
D) Notes Payable A/c Dr.; To Bank A/c
Ans: C) Vendor A/c Dr.; To Notes Payable A/c
Q2: Under GAAP, bills payable are classified as:
A) Intangible assets
B) Current liabilities
C) Long-term debt
D) Prepaid expenses
Ans: B) Current liabilities
Q3: How is the liability removed when the company pays the bill?
A) Credit bills payable; Debit accounts payable
B) Debit bills payable; Credit bank
C) Debit bank; Credit bills payable
D) Debit accounts payable; Credit bank
Ans: B) Debit bills payable; Credit bank
Q4: Which internal control is most important for bills payable?
A) Bank reconciliation
B) Inventory check
C) Authorization of credit purchases
D) Capital budgeting
Ans: C) Authorization of credit purchases
