Journal entries for payments: bank, cash, receivables
Payments only move balances between accounts; no income or expense arises. So there is no VAT, and the entry has exactly one account on each side.
How to book it
- 1
Money comes in: debit Bank or Cash (an asset increases).
- 2
Money goes out: credit Bank or Cash (an asset decreases).
- 3
A customer pays: Bank / Trade receivables. We pay a supplier: Trade payables / Bank.
- 4
Paying cash into the bank: Bank / Cash. Withdrawing cash: Cash / Bank.
Worked examples
Johnson Ltd settles the open invoice of £6,660.00 by bank transfer.
Correct journal entry
Bank £6,660.00 / Trade receivables £6,660.00
Debit
Bank£6,660.00
Credit
Trade receivables£6,660.00
Why?
- Bank: asset increases → debit
- Trade receivables: asset decreases → credit
Bank statement: £18,180.00 paid to Evans Ltd for their invoice.
Correct journal entry
Trade payables £18,180.00 / Bank £18,180.00
Debit
Trade payables£18,180.00
Credit
Bank£18,180.00
Why?
- Trade payables: liability decreases → debit
- Bank: asset decreases → credit
We pay £1,000.00 from the till into the bank account.
Correct journal entry
Bank £1,000.00 / Cash £1,000.00
Debit
Bank£1,000.00
Credit
Cash£1,000.00
Why?
- Bank: asset increases → debit
- Cash: asset decreases → credit
Your turn
Choose the accounts, enter the amounts and check. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
We pay the invoice from Hughes Trading for £18,780.00 by bank transfer.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
All cases on this topic
Typical mistakes
- Booking VAT again when an invoice is paid: the VAT was booked with the invoice.
- Mixing up receivables and payables: receivables are owed to us, payables are what we owe.
Frequently asked questions
How do you book a payment from a customer?
Debit Bank, credit Trade receivables with the invoice amount (gross).
How do you book paying a supplier?
Debit Trade payables, credit Bank with the invoice amount.
Why is there no VAT on a payment?
Nothing is bought or sold at that moment; the VAT was already booked with the invoice.