What is a vendor bill?

Definition

A vendor bill is the supplier's invoice for goods or services the business already received. Recording it increases accounts payable, a current liability, without moving cash yet.

The bill is the source document for that payable. Until someone records it, the books do not yet show the amount owed to that vendor.

Where it shows up

Balance Sheet: Located in the current liabilities section, as an increase to accounts payable.

P&L: Related to expense if the goods were used; related to inventory if they are still on hand.

Cash flow: Related to nothing extra until the later payment.

See also: Accounts Payable · Three-Way Match · Purchase Order

When you look at the Balance Sheet, the open vendor bills sit inside accounts payable. That total is what the business still owes suppliers for bills already entered.

A rising balance usually means more bills have been recorded than paid. A falling balance usually means payments are catching up with the bills on the books.

The Income Statement is touched only by what the bill was for. If the bread was already used the amount is expense; if the loaves are still on the shelf, the amount is inventory.

Cash on the Statement of Cash Flows does not move when the bill is recorded. Cash leaves later, when the payable is paid.

How it works

The vendor sends a bill after goods or services have been delivered. The bill names the vendor, the amount, the date, and often the payment due date.

Someone enters that bill into the payables records. The entry increases accounts payable and increases inventory or expense, depending on what was bought.

The bill should agree with the purchase order and the goods receipt before it is approved. That comparison is a separate check.

Once approved, the bill remains open until cash is sent. Open bills are the detail behind the accounts payable total on the Balance Sheet.

If the amount is wrong, the vendor may later send a credit memo. That document reduces the payable; it does not erase the original bill from the story.

Payment terms on the bill say when cash is due. Net-15 or net-30 is a due date, not a journal of its own.

The bill date is the date the payable starts aging. The due date is when the vendor expects cash, and those two dates are not the same.

The later payment clears the payable. The payment is a different event from recording the bill.

Example

A bakery bills a cafe $1,200 for last week's bread. The loaves are still in the cafe's storeroom, so the cafe records inventory, not expense.

Debit: Inventory $1,200

Credit: Accounts payable $1,200

Inventory on the Balance Sheet rises by $1,200, and accounts payable rises by the same amount. No cash has left yet.

The cafe now has a $1,200 payable to the bakery. That amount will stay in accounts payable until the cafe pays it.

If the cafe had already baked and sold those loaves, the debit would be to expense instead of inventory. The credit would still be to accounts payable.

Common mix-ups

A vendor bill is not the same as a customer invoice. The vendor bill is what the business owes, and a customer invoice is what sits in accounts receivable.

Recording the bill is not the same as paying it. The journal above creates the payable, and cash moves only on the later payment.

People also mix the bill with the purchase order. The purchase order authorizes the buy; the vendor bill is the demand for payment after the buy has happened.

A packing slip is also not a vendor bill. The packing slip supports that goods arrived, and the bill is what creates the payable.

Related terms

• Accounts Payable: Amounts the business owes vendors for goods or services already received.
• Three-Way Match: Checking the purchase order, receipt, and vendor bill against each other before paying.
• Purchase Order: The document authorizing a purchase from a vendor at agreed terms.
• Accounts Payable Aging: A report bucketing unpaid vendor bills by how long they have been outstanding.
• Check Run: The scheduled batch in which approved vendor bills are paid.
• Payment Terms: The agreed deadline and conditions for paying an invoice.
• Approval Workflow: The routing of a request or bill through the people who must sign off.
• Source Document: The original receipt, bill, or statement that supports an entry.