Paying accounts payable that are already included in a company’s accounting records will not affect the company’s net income. (Generally speaking, net income is revenues minus expenses.)

Under the accrual basis of accounting, if an expense is associated with an accounts payable, the expense will be recorded at the time the accounts payable is recorded—not at the time of the payment. For example, on January 2 a company has its office copier repaired. The cost of the repair is $300 and is to be paid by January 31. On January 2, the invoice for the repair is recorded with a $300 debit to Repairs and Maintenance Expense-Office Equipment and a $300 credit to Accounts Payable. On January 31 when the invoice is paid, the company will debit Accounts Payable and will credit Cash for $300. As you see, the January 31 transaction affects two balance sheet accounts; no expense account or other income statement account is involved.

The January 31 transaction also illustrates that an expenditure is not necessarily an expense. Here are two additional examples: (1) A company pays cash to purchase an asset that will be used in the business. At the time of the purchase, an expenditure takes place, but not an expense. The expense will occur later when the asset is depreciated. (2) A company repays $50,000 of principal owed on its bank loan. The $50,000 is an expenditure, but it is not an expense.

Expenses are costs that are used up in order for the company to earn revenues. Expenses are also costs that expired during an accounting period. Under accrual accounting, expenses can occur before or after a cash expenditure is made.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on AccountingCoach.com. You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.

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