When an electronic funds transfer (EFT) is used to pay cash on account , the account that is credited is Cash (or Cash in Bank) , and the account that is debited is Accounts Payable.

Core idea

  • Paying “on account” means you are settling an existing liability to a creditor.
  • An EFT is just the method of payment; the journal entry is the same as if you wrote a check.
  • So you:
    • Debit: Accounts Payable (to reduce the liability).
    • Credit: Cash / Bank (to reduce the cash balance).

Why Cash is credited

  • The business’s bank balance goes down when money is transferred electronically, so the Cash/Bank account must be credited to reflect the outflow.
  • The liability to the supplier (Accounts Payable) is reduced, so that account is debited to show that less is owed.

Mini example

  • Suppose you owe a supplier 500 on account.
  • You pay the full amount via EFT:
    • Debit Accounts Payable 500.
    • Credit Cash (or Bank) 500.
  • This clears the payable and reduces your bank balance by the amount paid.

Information gathered from public forums or data available on the internet and portrayed here.