Trade Payables — full notes
Paper No. 1: Financial Accounting · Accounting for Assets and Liabilities - Trade Payables
Trade Payables
1. The mirror relationship
Trade payables are what a business owes its own suppliers for credit purchases - the mirror of trade receivables. The same transaction produces both: when Business A buys on credit from Business B, A records a payable, and B records a receivable, for the identical amount.
2. Why there is no "provision for doubtful payables"
Receivables need a provision because a business cannot be certain every customer will pay - genuine uncertainty about money coming in. There is no equivalent uncertainty about money going out: a business either pays what it owes or it does not.
3. Settlement discounts
Amount paid = Invoice amount x (1 - discount rate)
Example: an invoice for KES 180,000 offers a 2% discount for payment within 14 days, taken. Discount = 180,000 x 2% = KES 3,600. Amount paid = 180,000 - 3,600 = KES 176,400.
4. Reconstructing the payables balance
Opening payables
Add: Purchases on credit during the year
Less: Payments made to suppliers
= Closing payables
Works with any one figure missing, given the other three.