Definition and Purpose
- Bills:
- Definition: A bill is a document from a vendor requesting payment for goods or services provided. It represents a liability or an amount owed by your company.
- Purpose: To record an obligation to pay a vendor for products or services received, reflecting the expense in the company’s accounts.
- Bill Credits:
- Definition: A bill credit is a document issued by a vendor that reduces the amount you owe. It often results from returns, overpayments, or adjustments.
- Purpose: To adjust or reduce the balance of a bill previously entered, reflecting corrections or refunds in the accounts.
Creation and Entry
- Bills:
- Creation: Entered when you receive an invoice from a vendor.
- Entry Details: Includes vendor name, bill date, due date, bill number, accounts to be debited, and itemized charges.
- Bill Credits:
- Creation: Entered when you receive a credit note from a vendor or need to record an adjustment.
- Entry Details: Includes vendor name, credit date, credit number, accounts to be credited, and items or services being adjusted.
Impact on Financial Statements
- Bills:
- Impact: Increases accounts payable and expenses. It reflects a liability on the balance sheet and impacts the income statement as an expense.
- Bill Credits:
- Impact: Decreases accounts payable and reduces expenses. It offsets a liability on the balance sheet and adjusts the income statement to reflect reduced expenses.