Bills on the books: posting, paying and accruing
The bill entry, the payment entry, accrued expenses for costs with no bill yet, and cut-off, on Northwind's drills and power.
Posting a bill and paying it are two different events, and they usually fall in different weeks or months. The bill records the cost and the obligation together; the payment settles the obligation and touches no expense. Northwind's JE-4 and JE-9 are the pair.
$18,000 of stock arrives from a supplier, on 30-day terms.
| Account | Debit | Credit |
|---|---|---|
| 1300Inventory | 18,000.00 | |
| 2000Accounts payable | 18,000.00 | |
| Balanced | 18,000.00 | 18,000.00 |
Northwind pays $12,000 against the supplier's bill.
| Account | Debit | Credit |
|---|---|---|
| 2000Accounts payable | 12,000.00 | |
| 1000Cash — operating | 12,000.00 | |
| Balanced | 12,000.00 | 12,000.00 |
The bill, then the payment.
Costs with no bill yet: accrued expenses
Some costs arrive before their bill does. Northwind used $450 of power in September and the utility would not bill it until October. With no bill there is no payable, so the cost is an accrual: debit the expense, credit an accrued liability. At September 30 Northwind owes $6,000 on bills and $450 on costs nobody has billed.
September's power was used but the utility has not billed yet: $450.
| Account | Debit | Credit |
|---|---|---|
| 6500Utilities expense | 450.00 | |
| 2200Accrued liabilities | 450.00 | |
| Balanced | 450.00 | 450.00 |
The cost belongs to September regardless of when the invoice arrives. With no bill there is no payable, so it is accrued — and reversed or replaced when the real bill lands in October.
AJE-3: September's power, accrued.
When the real bill lands on October 9, 2026, for $472.80, Northwind does not book a second $472.80 of expense on top of the estimate. It posts a reversing entry on October 1, 2026 that cancels AJE-3, then books the bill as an ordinary bill. October's power expense nets to the $22.80 the estimate missed by, a small true-up.
Reverse AJE-3
| Account | Debit | Credit |
|---|---|---|
| 2200Accrued liabilities | 450.00 | |
| 6500Utilities expense | 450.00 | |
| Balanced | 450.00 | 450.00 |
OCT-1: the estimate comes out on the first day of October.
September's power bill
| Account | Debit | Credit |
|---|---|---|
| 6500Utilities expense | 472.80 | |
| 2000Accounts payable | 472.80 | |
| Balanced | 472.80 | 472.80 |
OCT-6: the real bill, booked as usual. October's power expense nets to $22.80.
Wrong
Book the $472.80 bill and leave AJE-3 standing. October expense: $472.80, and 2200 never clears.
Right
Reverse AJE-3 on October 1, 2026, then book the $472.80 bill. October expense: $22.80.
Without the reversal (or clearing the accrual directly against the bill), September's power is expensed twice: once as the estimate, once as the bill.
Cut-off
Cut-off is getting each cost into the period it belongs to. The test is when the goods or service arrived, not the date on the bill or the date it is paid. At each month end, list what was received and not yet billed, accrue it, and check that bills dated in the new month for last month's work were not left out.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Anything marked as a convention is ours, not the rule-maker's.
- US GAAP
- ASC 405 (opens in a new tab)LiabilitiesFree after registration
- Conceptual framework
- CON 8, Introduction — as amended by Ch. 4, App. A (carrying forward CON 6, ¶139) (opens in a new tab)What accrual accounting is forFree to read
The full map is in US GAAP, and where these rules come from.
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Accounts payableWhat we owe vendors for bills already received
- AccrualAn expense incurred, or revenue earned, before it is invoiced — recorded at period end so it lands in the right period
- Accrued liabilityAn obligation for goods or services received but not yet invoiced or paid — wages, interest, professional fees — recorded by an accrual
- Reversing entryAn entry dated the first day of the next period that exactly offsets a period-end accrual, so the real invoice can be coded normally without double-countingConvention
- True-upThe adjustment that replaces an estimate with the actual amount once it is known
- CutoffRecording each transaction in the period in which it occurred — the boundary tested at every period endConvention
- BillA claim against us
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.
See also
- Schedules, accruals & roll-forwardsEvery balance sheet account needs a schedule behind it, and the schedule has to tie to the GL. Most accounting products ship a ledger and statements and leave the schedules in spreadsheets. That handoff is where closes break.
- Periods & the closeThe month-end close in accounting software: fiscal calendars, period states, cutoff, reconciliation vs tie-out, adjusting entries and restatement.
- Procure to pay (AP)The payables stack from requisition to reconciliation: requisition → PO → receipt → bill → approval → payment → reconciliation.
- Duplicate paymentsSame vendor, same amount, close in time. Or the same reference on any date.
- Journal entry for accounts payableWhen an approved vendor bill is entered, debit the expense or asset it bought and credit Accounts payable. When it is paid, debit Accounts payable and credit Cash.
- Journal entry for accrued expensesAt month-end, debit the expense and credit Accrued expenses for work received but not yet billed. Reverse the accrual on the first day of the next month, then book the vendor's bill as usual when it arrives.
- Accrued expenses vs accounts payableBoth are liabilities for costs already incurred. If the vendor's invoice has arrived and been approved, the cost is in accounts payable. If it hasn't, the month-end estimate is an accrued expense.
- Accrual basis vs cash basisCash basis books revenue and expenses when money moves. Accrual books them when they're earned or incurred, so a year of insurance paid up front is one month's expense on cash basis and a twelfth a month on accrual.
- Accrued expenses vs accounts payable at month-endAP is a bill you’ve received; an accrued expense is a cost incurred before the bill arrives. When to accrue, and how reversing entries work, by example.
- BillFormPer-line coding, required evidence, discount ROI surfaced.
- DuplicateBillAlertBlocking. Duplicate payment is one of the most common AP losses.
- UninvoicedReceiptsReportGR/IR aging. The evidence for the period-end accrual.
- AdjustingEntryFormTemplated by type. Auto-reverse defaults on for accruals.