Instalments paid to supplier

How are instalments dealt with in accounts

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Hi

in a situation where a limited company is paying agreed weekly payments towards a debt owed to a supplier and those payments have been made over a couple of years and continue to be made can anyone tell me how such payments are recorded on a profit and loss account/balance sheet please?

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By Wanderer
21st Jan 2017 15:53

??? Why do you think they affect the P&L???

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Replying to Wanderer:
By cheekychappy
21st Jan 2017 18:31

Interest might be due.

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Replying to cheekychappy:
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By Wanderer
21st Jan 2017 18:40

OP states 'towards a debt'.

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Replying to Wanderer:
By cheekychappy
21st Jan 2017 18:51

From experience, I find that taking questions literally on this website often leads to incorrect analayses.

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By johngroganjga
21st Jan 2017 15:56

They reduce the debt - of course. What is the difficulty?

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By bignige
21st Jan 2017 16:28

I am not an accountant. Are the payments that leave the bank to the supplier simply ignored in the profit and loss account - and then the balance still due shown on the balance sheet as amount due to creditors in one year?

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Replying to bignige:
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By BudgetB
21st Jan 2017 16:53

Yes, the payments would go from the bank to reduce the supplier balance - although if it's a really long term debt then it might need to be split out into amount due over a year.

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Replying to bignige:
Scalloway Castle
By scalloway
21st Jan 2017 23:58

bignige wrote:

I am not an accountant. Are the payments that leave the bank to the supplier simply ignored in the profit and loss account - and then the balance still due shown on the balance sheet as amount due to creditors in one year?

The first stage of the transaction is to debit expenses in the P&L and credit creditors when the invoices are received. The payments are then reflected on the balance sheet.

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Replying to bignige:
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By DMGbus
22nd Jan 2017 11:32

There are two alternative ways to deal with payments to suppliers, one them makes the payments hit the P&L the other does not:

1. No purchase ledger is operated, payments are posted direct to nominal ledger, so they hit the P&L as and when paid

2. Purchase ledger is operated, costs hit the P&L when a supplier invoice is posted to a supplier account in the pyurchase ledger; payments subsequently made reduce the balance on the supplier account in the purchase ledger without touching / affecting the P&L (unless there is settlement discount, etc. to be adjusted for)

Most businesses use method 2, ie. use a purchase ledger; some smaller businesses to simplify matters use method 1. Method 1 does not record money owng to suppliers at any one time (except by having a folder of unpaid invoices to reflect unpaid bills).

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Replying to DMGbus:
By petersaxton
22nd Jan 2017 11:34

I would suggest that nobody would sensibly use method 1 if suppliers were allowing long or medium term credit.

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By petersaxton
21st Jan 2017 16:34

People don't seem to understand that bookkeeping and accounting is meant to reflect reality. If you understand reality then that is half the battle.

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By petersaxton
21st Jan 2017 20:38

Lets try to explain this logically:
The limited company owes money to a supplier - this is a credit on the balance sheet.
The limited company makes a payment against that debt - that means money comes out of the company bank account and is paid to the supplier to reduce the debt to them.
The double entry is as follows:
Money comes out of company bank account - Cr Bank
The money reduces the debt to the supplier - Dr Supplier a/c
This is one of the simplest transactions possible. If you are not an accountant and don't understand this transaction you should ensure that somebody who does understand bookkeeping and accounting records the transactions in the company books.

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Replying to petersaxton:
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By Cheshire
21st Jan 2017 22:16

petersaxton wrote:

you should ensure that somebody who does understand bookkeeping and accounting records the transactions in the company books.

Think he is trying to do his own

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Replying to Cheshire:
By petersaxton
22nd Jan 2017 10:54

That's what scares me.

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