Recording Purchases and Expenses: Bills, Receipts, and Paying Vendors

What “Purchases and Expenses” Means in Day-to-Day Bookkeeping

In bookkeeping, “purchases” and “expenses” are recorded from vendor documents (receipts, invoices/bills, statements) and payment records (bank/credit card activity). The key decisions are: (1) what account(s) the cost belongs in, and (2) whether you paid now or owe the vendor and will pay later (Accounts Payable).

This chapter focuses on two practical skills: (a) categorizing vendor costs correctly (including splitting one receipt across multiple accounts), and (b) recording the timing difference between receiving a bill and paying it.

Distinguish: Supplies/Inventory-Like Items vs. Operating Expenses

1) Supplies and inventory-like items

These are items you buy to use in the business or to support production/service delivery. Depending on your business and accounting approach, they may be tracked as:

• Supplies Expense (common for small, low-dollar items used quickly: paper, toner, cleaning supplies)
• Supplies (asset) (if you want to track supplies on hand and expense them as used)
• Inventory (items held for resale; if you track inventory, purchases typically go to an inventory account rather than an expense)
• Cost of Goods Sold (some businesses record purchases directly to COGS; others move inventory to COGS when sold)

For this chapter, the practical point is: don’t automatically post every vendor purchase to a single “Misc Expense” account. Decide whether it is an inventory-like item/supply category or an operating expense.

2) Operating expenses

Operating expenses keep the business running and are not held for resale. Examples include:

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• Rent
• Utilities
• Fuel/vehicle expenses
• Office expenses
• Software subscriptions
• Repairs and maintenance

Operating expenses are usually recognized in the period they’re incurred. The bookkeeping question becomes: did you pay immediately, or did you receive a bill and will pay later?

Two Timing Patterns: Pay Now vs. Bill Now, Pay Later

Pattern A: Paying immediately (cash, debit card, credit card)

If you pay at the time of purchase, there is no Accounts Payable created. You record the expense (or supplies/inventory) and reduce the payment account.

Pattern B: Receiving a bill and paying later (Accounts Payable)

If a vendor sends an invoice with payment terms (for example, “Net 30”), you record the bill first. This creates Accounts Payable (A/P). When you pay later, you reduce A/P and reduce cash/bank.

Think of it as a two-step process:

• Step 1 (bill received): record the expense(s) and increase Accounts Payable.
• Step 2 (bill paid): decrease Accounts Payable and decrease Bank.

Step-by-Step: Recording Purchases Paid Immediately

Example 1: Buying supplies with a debit card

Scenario: You buy office supplies at a local store for $86.40 and pay with your business debit card. The receipt shows sales tax included in the total.

Step 1: Decide the category. Office supplies used in the business → Supplies Expense (or Office Supplies, depending on your chart).

Step 2: Record the entry.

Debit  Supplies Expense            86.40
Credit Bank                         86.40

Step 3: Attach the receipt reference. In your system, link the transaction to the receipt image or receipt number for audit trail and later review.

Example 2: Paying with a credit card (expense now, liability later)

Scenario: You fill up the company vehicle for $52.10 and pay with a business credit card.

Entry:

Debit  Fuel Expense                 52.10
Credit Credit Card Payable          52.10

What this accomplishes: The expense is recorded when incurred; the cash impact happens when you later pay the credit card statement.

Step-by-Step: Recording Vendor Bills (Accounts Payable)

Example 3: Utility bill received, paid later

Scenario: You receive an electricity bill dated March 5 for $310.00, due March 25. You will pay it from the bank account on March 20.

Step 1 (March 5): Record the bill.

Debit  Utilities Expense           310.00
Credit Accounts Payable            310.00

Step 2 (March 20): Record the payment.

Debit  Accounts Payable            310.00
Credit Bank                        310.00

Practical note: The vendor name matters in A/P. If your system tracks A/P by vendor, enter the bill under the correct vendor so your A/P aging and vendor balances are accurate.

Example 4: Supplies ordered on account (bill received with multiple items)

Scenario: A vendor invoice includes: printer toner $180, packing materials $65, and shipping $20. Total $265. You will pay next week.

Step 1: Split into the right accounts.

• Toner → Office Supplies Expense (or Supplies Expense)
• Packing materials → Packaging Supplies (or Supplies Expense)
• Shipping → Shipping Expense (or Delivery Expense)

Step 2: Record the bill with multiple lines.

Debit  Office Supplies Expense     180.00
Debit  Packaging Supplies           65.00
Debit  Shipping Expense             20.00
Credit Accounts Payable            265.00

Step 3: Pay the bill later.

Debit  Accounts Payable            265.00
Credit Bank                        265.00

Splitting One Receipt Into Multiple Expense Categories

Many receipts contain mixed purchases (for example, fuel plus snacks, or hardware plus a service fee). Splitting is how you keep reports meaningful and avoid dumping everything into one catch-all account.

How to split a receipt (practical workflow)

• Read the receipt line by line. Identify what each line item represents (supplies, fuel, meals, fees, etc.).
• Decide the account for each line. Use the most specific account that fits your chart.
• Handle taxes and tips consistently. Depending on your setup, you may include sales tax in the expense line or separate it (if you track sales tax paid separately). Tips often belong with the related expense (for example, meals).
• Confirm the math. The sum of the split lines must equal the receipt total (including any tax/tip).
• Record the payment method. Bank vs. credit card determines which account is credited.

Example 5: One receipt with multiple expense lines (paid by credit card)

Scenario: You stop at a travel center and pay with a business credit card. Receipt total is $96.75, broken down as:

• Fuel: $72.40
• Windshield washer fluid: $8.35
• Snacks and drinks: $16.00

Step 1: Choose accounts.

• Fuel → Fuel Expense
• Washer fluid → Vehicle Maintenance (or Auto Supplies)
• Snacks/drinks → decide your policy: if for employees while traveling, could be Travel Meals or Meals; if personal, it should not be recorded as a business expense

Step 2: Record the split entry.

Debit  Fuel Expense                 72.40
Debit  Vehicle Maintenance            8.35
Debit  Meals (or Travel Meals)       16.00
Credit Credit Card Payable          96.75

Step 3: Add a memo. Note the business purpose (for example, “Client site visit travel”) to support the categorization.

Common Accounts Payable Scenarios and How to Record Them

Partial payment of a vendor bill

Scenario: You owe a vendor $1,000 but pay $400 now and $600 later.

When the bill is recorded:

Debit  (Expense or Inventory)      1,000.00
Credit Accounts Payable            1,000.00

When you pay $400:

Debit  Accounts Payable              400.00
Credit Bank                          400.00

The remaining A/P for that vendor bill is $600 until paid.

Credit memo or vendor refund applied to a bill

Scenario: Vendor issues a $50 credit for returned items, applied against an open bill.

A common approach is to reduce the original expense category (or inventory) and reduce A/P:

Debit  Accounts Payable               50.00
Credit Supplies Expense               50.00

The exact account credited should match what you originally debited, so your expense totals remain accurate.

Expense Categorization: Practical Rules That Prevent Messy Books

• Match the category to the “why,” not the vendor. A big-box store can sell office supplies, tools, snacks, and equipment—split by what you bought.
• Use consistent categories for recurring costs. For example, always post internet service to Utilities (or a dedicated Internet Expense account) so monthly comparisons are meaningful.
• Separate operating expenses from inventory-like costs. If you track inventory, keep inventory purchases out of operating expense accounts.
• Don’t bury fees. Bank charges, merchant fees, shipping, and service fees are often worth separating for visibility.
• Document gray areas. If a receipt includes borderline items, add a memo and follow a consistent internal policy.

Reconciliation-Style Check: Confirm Vendor Bills Are Fully Captured in Accounts Payable

Accounts Payable is only reliable if every bill is entered and posted correctly. A simple completeness check compares (1) your list of vendor bills and (2) the A/P ledger totals.

Check 1: Tie total open bills to the A/P control balance

Goal: The total of all unpaid vendor bills (from your bill list) should equal the Accounts Payable balance in the general ledger as of the same date.

Step-by-step:

• Pick a cutoff date (for example, month-end).
• Run an Open Bills report (or list of unpaid vendor invoices) as of that date and total it.
• Get the Accounts Payable ledger balance as of the same date.
• Compare totals. They should match.

Check 2: If there’s a difference, use a targeted checklist

• Bills entered but not posted correctly: A bill might have been coded directly to Bank or Credit Card instead of Accounts Payable.
• Payments recorded without a bill: If you paid a vendor and coded it straight to an expense, you may have skipped entering the bill (A/P will be understated, and vendor history will be incomplete).
• Duplicate bills: The same invoice entered twice will overstate A/P.
• Wrong date/cutoff: A bill dated after the cutoff date included in the open bills list (or vice versa) will cause mismatch.
• Vendor credits not applied: Unapplied credit memos can distort vendor balances and the A/P total.

Mini example: Finding a mismatch

Scenario: Open bills total $2,150, but the A/P ledger shows $1,850 (difference $300).

Likely cause: A $300 vendor invoice was paid immediately and recorded as:

Debit  Repairs and Maintenance      300.00
Credit Bank                         300.00

But the invoice was also still listed as “open” because it was never entered as a bill and matched to the payment. Correcting this typically involves entering the bill to A/P and applying the existing payment to it (so the open bills list and A/P ledger align).