What are Services Rendered?

Account Payable

Definition:

Service rendered can be explained as a finishing off of service agreement that is furthered to the client as an indicator that the work has been completed, so that payment can be generated accordingly from the services receiver to provider.

Service rendered, by definition means that the agreed upon service has been completed, so that the final leg of the payment can finally be processed.

Service rendered is a concept that is used to convey about the deliverable that has been delivered to the service user.  

Explanation:

In normal service contracts, it can be seen that there is an inherent need to ensure that there is no existing expectation gap between the service provider and the user of the services.

This is essentially because of the fact that in most service contracts, the eventual outcome of the contract is intangible, in the sense that it cannot be physically touched or felt.

Therefore, in this regard, it is quite important to ensure that service provider, as well as the service user are on the same page pertaining to the deliverables as well as the scope of work included in the service contract.

This calls for the parties involved to maintain proper paperwork, as well as proper record keeping that can ensure that there are no bottlenecks further on in the agreement process.

Services rendered can be explained as one of the final steps within the service agreement, which notifies the buyer of the services that all the work that had been decided upon in the service contract has now been completed, and the remaining dues should subsequently be cleared as an indication of finishing off the final contract.

The need to have such a document is mainly to reinforce (in a formal manner) that the work has been completed.

It not only acts as a formal notification, but also acts as a communication related channel between both the parties regarding the scope of the work ending, and the cost incurred.

It therefore includes all the relevant cost components and figures that are included in the existing state of affairs.  

Example:

Services Rendered is a concept that can be best explained in circumstances that have a relative degree of ambiguity pertaining to the service completion itself.

For example, in construction related work, the actual cost of the construction, as well as the timelines cannot always be accurately estimated earlier on in the project, because of fluctuation in rates, as well as unprecedented logistical issues that might arise over the course of time.

In such cases, it often becomes challenging to align expectations between both the parties, in order to avoid an unnecessary misunderstanding in the future.

This misunderstanding can either be on the grounds of ambiguity pertaining to costing, or any other timeline or deliverable associated with project completion.

What does a Rendered Invoice mean?

A rendered invoice, by definition means that invoices that are issued to the user of the services including a detailed breakdown of the work completed, as well as the cost associated with the service delivery.

It is also important to ensure that the invoice that is generated is in proper compliance with the laws and regulations, as well as the initially agreed upon terms and conditions in the service agreement.

Having a correctly rendered invoice is also very important because of the fact that it might lead to confusions and misunderstandings in the longer run.

Hence, having a detailed breakdown, and including the relevant documentation attached as an appendix to the invoice is probably a good idea that can enable both the parties to have clarity about the invoice generated, along with the breakdown of the relevant costing.

What is rendered in Accounting?

Rendered is basically a term that is used in accounting, in order to highlight the fact that services have been completed, and the payment should be generated in accordance with the work that is completed.

Rendered simply means executed, or completed. In the case of services, it means that the agreed upon or the required services have now been completed.

For example, in case of a software house that creates websites, services would be created rendered on a particular order after the software house has completed creating the website.

In this situation, after the website has been created, it would be considered as ‘rendered’.

Specific to accounting, it can be seen that ‘render accounting’ is a term that is specifically used for accountants, who provide accountancy services.

Accountants tend to manage books of the company, and create financial statements. Therefore, these accountants are said to have rendered their accounting services to the company.

Notes Payable Journal Entry

Account Payable

Meaning of Notes Payable

Notes payable form the largest portion of the current liability section on the company’s financial statements. It represents the purchases that are unpaid by the enterprise.

In the cash conversion cycle, companies match the payment dates with Notes receivables making sure that receipts are made before making the payments to the suppliers. The lower the Notes payable days the better. It reflects that the company can realize the cash in a good fashion.

An example would be: The Bold Fashions Ltd bought textile garments from Sri Textile traders as raw materials on credit. The Bold Fashions here got the inventory as a current asset while creating a short-term obligation on the other hand.

Nature of Notes Payable

The nature of Notes payable matches with current liabilities. The common characteristics below conclude why Notes payable is within current liability:

• Both are short term obligations to meet within the year.
• Notes payable is a subset of current liability.
• The major portion of working capital requires the management of Notes receivable and Notes payable, both contributing to a healthy cash conversion cycle and so does current liabilities as a whole.
• Both Notes payable and current liabilities are the results of a past transaction that obligates the entity.

Current liabilities are one of two-part of liabilities and hence, Notes payable are liabilities. The nature of Notes payable does not match with those of assets or equity in nutshell.

Notes payable fall under current liabilities section which falls under liabilities part of the Balance sheet as shown below:

Contents of Notes payable

The information on a general format of notes payable include the following:

• Issuer or Maker: The individual who promises to make the payment
• Payee: The individual who is promised to be paid to.
• Principal or face value: The amount being borrowed.
• Term of note: The period of notes payable.
• Issue date: The date on which the promissory note is written.
• Interest rate
• Maturity date: The due date on which the note payables has to be matched with payment.

All these components play a vital role in making appropriate journal entries.

Journal Entries for Notes Payable

Let’s discuss the various instances of notes payable with examples in each of the following circumstances:

• Issued Notes Payable for cash

If Ram Inc issues notes payable for $30,000 due in 3 months at 8% p.a. to obtain loan. The interest would be $ 30,000 * 3/12 * 8% = $600.

The relevant journal entry would be

• Issuance of notes payable to extend the period of the loan.

When there is a liquidity crunch, fresh notes payable have to be issued for extended credit terms. Suppose Ram Inc issues notes payable for the overdue supplier to extend the loan for 3 more months, the required journal entry would be:

• Discount on notes payable

There is no premium in case of issue of notes payable. Notes payable is an instrument to extend loans or to avail fresh credit in the company.

Suppose Ram Inc issued a note payable for 29,200 payables in 1 year and received cash of $27,548. The 29,200 is the total amount to be repaid and interest assumed to be included in this amount is 29,200 – 27,548 = $1652.

This has been assumed to be calculated with a discount rate of 6% and the difference between present value and future value is deemed as a discount.

The journal entry is also required when the discount is charged as an expense.

Other interest expense entries shall be made as usual.

Accounting for Bonds Payable

Account Payable

Introduction & Overview

In the modern day and age, there have been notable innovations in the field of accounting and finance that has significantly increased the number of options they have, pertaining to financing. Where financing tends to be an increasingly important phenomenon in today’s competitive business landscape, companies are faced with the need to decide which particular financing tool that would be a best fit.

Regardless of the options available to organizations, bonds continue to be a top choice for organizations because of several different reasons, the primitive of which is the fact that they are relatively easier to obtain, and subsequently exercise. This article is going to cover accounting for bonds payable, and how bonds payable are accounted for in the normal course of the business.

What Are Bonds Payable?

Bonds can simply be defined as obligations that indicates the need to repay the issuing party at a future date, in addition to periodic (and agreed upon) interest rates. Bonds are normally issued at the same time to different buyers, and organizations mostly procure it in order to ensure that they are able to raise funds for the business.

Bonds are referred to as units of corporate debt that are mostly securitized as tradeable assets. It can be classified as a fixed income instrument because of the fact that a fixed interest rate is paid to the issuing party, in most cases.

Speaking of bonds payable, it can be seen that bonds payable mostly refer to instruments that need to be settled by the company, in principal, as well as the interest that is supposed to be paid on the given amount.

Types of bonds payable:

Within the realm of bonds payable, there are a number of options that investors, or companies can choose from. These options are curated in order to satisfy the risk appetite of the given buyer. The types of bonds are given below:

• Serial Bonds: These are bonds that are issued in different groups and intervals, which mature at different dates.
• Sinking Fund Bonds: Sinking Fund Bonds are bonds that require the issuer of the bonds to have certain assets designated specifically to pay the principal amount on maturity. Setting aside of specific assets ensures that the risk profile is reduced, and there are funds at the end to pay the amount.
• Convertible Bonds: Convertible Bonds have the option of the amount of finance raised to be exchanged for a fixed number of shares for the company’s common stock. Therefore, if organizations opt for this type of Bond, they have the option to issue equity, rather than paying back the amount in cash.  
• Secured Bonds: Secured Funds bonds are somewhat similar to Sinking Fund bonds, except for the fact that when these bonds are issues, organizations are supposed to pledge some of their assets as collaterals as surety that the party will eventually be paid, in case the organization fails to abide by the required terms and conditions.  
• Debenture Bonds: Debenture Bonds are unsecured bonds, and they require the bondholder to have a good name and repute in order to ensure repayment of principal and interest for the issuing company. These can be considered riskier as compared to secured bonds.

Bonds Payable in Balance Sheet

Bonds Payable are considered as a Long-Term Liability for the company issuing the bonds. This is primarily because of the fact that Bonds Payable are supposed to be paid in full upon maturity, and it is important for organizations to depict this particular obligation on the Balance Sheet at the end of the subsequent year.

Therefore, Bonds Payables are presented under Non-Current Liabilities (if they are supposed to be settled after a period of one year), in the Balance Sheet of the company.

Journal Entry and Example

Bonds can either be issued at par, or at a discount by the company. The accounting process that is carried out when working with bonds payable, is illustrated in the following example.

Example 1

On July 1 2019, ABC Corporation issued bonds worth $10,000 for a ten-year period with a coupon rate of 10%, and semi-annual payments.  

The entries for the above transaction in the General Journal would be as follows:

In the same manner, upon principal repayment, the following journal entry is made:

The above entry is made in order to showcase the settlement of Bonds Payable after the principal amount has subsequently been made. Prior to the settlement, Bonds Payable are represented as a Long Term Liability (Non-Current Liability) on the Balance Sheet.

In the case where Bonds are issued at a Discount, the amount actually paid upon issuance of bonds is amount which is debited as cash. For example,

In the same manner, if the Bonds are issued at Premium, the following journal entry is made.

Conclusion

Bonds Payable can be considered as a very useful and resourceful tool for companies that helps them to arrange their financing needs without a lot of strings attached. Factually, Bonds Payable can be considered as a safe and secure means of external financing that can help companies to increase their leverage in the desired manner.

The accounting for bonds payable can simply be considered as treatment of long-term liability. When the principal is paid for, the amount is then removed from the Non-Current Liabilities of the company. However, the amount that the company receives upfront from Bonds depends on whether the bond is issues at par, premium, or at a discount. Depending on this, the journal entry is subsequently made.

Is Accounts Payable Debit or Credit?

Account Payable

Nature of account payable

Accounts payable of a company or business represents all the balances that it expects to pay in the future. Another name used for accounts payable is creditors. Companies that purchase from suppliers who offer credit terms usually accumulate accounts payable balances. At the end of each year, they present their accounts payable balances in their balance sheet.

By nature, accounts payable is a liability. Liability is an obligation that a company enters into due to the past transaction that it must settle at some point in the future. These obligations can come from many sources for the company. However, only the obligations that come as a result of the company’s operations and its dealings with vendors or suppliers become a part of its accounts payable balances.

Account Payable in Balance Sheet

Due to its nature, the accounts payable businesses of a company appears under its total liabilities in its Balance Sheet. The accounts payable balances of a company will almost always be a part of its current liabilities. It is because accounts payable usually represent short-term obligations that the company expects to pay within 12 months of the time it prepares its Balance Sheet.

However, if a supplier provides the company with better credit terms, for instance, more than a year, it must classify the accounts payable as non-current. Cases in which companies can classify their accounts payable balances as non-current are rare. However, some large suppliers may allow flexible credit terms. For example, a company purchasing heavy machinery from a large supplier may get better repayment terms as compared to small purchases from local vendors.

Is Accounts Payable Debit or Credit?

Whether accounts payable is debit or credit depends on the type of transaction. Because it is a liability, accounts payable is usually a credit. However, in some cases, it can also be debit. Generally, whenever the accounts payable balance of a company is increasing, it is a credit. However, when there is a decrease in it, then the company must use a debit entry.

The most common reason for credit in accounts payable is credit purchases. Whenever a company purchases goods with credit terms, it must credit accounts payable. On the other hand, the usual reason for a debit in accounts payable is cash repaid to suppliers resulting in a decrease in liabilities. Other reasons for debit in accounts payable include discounts or purchase returns.

Double Entries

When a company makes purchases from suppliers, it must debit its purchases account. On the other hand, it must increase its liabilities in case the purchases are on credit terms. The double entry for a credit purchase is as follows.

Usually, instead of using the “Account payable” account, companies use the name of the supplier from whom they made purchases. It allows them to organize their accounts payable balances better as compared to having all the balances under a single account.

Once the company repays the supplier, it must reduce the liability associated with it. Usually, companies repay their suppliers through either bank or cash. Therefore, the double-entry for repayment of accounts payable is as follows.

In case the company returns the purchased goods before having repaid the liability, it must also debit its accounts payable balance. It is because goods returned to supplier reduce the associated liability, assuming the supplier accepts returns. For payables for services, returning is not an option as services are perishable. The accounting entry for returns related to accounts payable is as follows.

Examples

A company, ABC Co., purchases goods worth $10,000 from a supplier, XYZ Co. It also purchases goods worth $5,000 from another supplier, RST Co. Both of these purchases are on credit. The double entries for the purchase made from XYZ Co. are as follows.

Similarly, for the purchase made from RST Co., the double-entry is as follows.

After a month, ABC Co. repays XYZ Co. for the related purchase made above. ABC Co. uses its bank balance to repay the liability. Therefore, the accounting entry to the accounts payable account is as follows.

Conclusion

Accounts payable is a liability for companies or businesses that they accumulate due to their operations. These represent short-term liabilities from suppliers in exchange for credit purchases. Accounts payable is a liability by nature and usually presented under Current Liabilities in the Balance Sheet. Usually, accounts payable is credit, but it can also be debit when decreasing.