Partial Payment to Creditor Journal Entry

Making partial payments to creditors is a common financial practice that can provide financial relief while still honoring outstanding debt obligations. This process is generally used when a company is unable to pay its full debt obligations and needs to manage its cash flow.

In the case of partial payment, the company will pay only a portion of the total debt amount and the creditor will recognize this as a form of payment.

The journal entry for a partial payment made to a creditor will be recorded in the accounting books and will include the creditor and the amount of the partial payment. The journal entry will also include a credit entry to the creditor account for the amount of the partial payment and a debit entry for the amount of the payment made. This will result in a decrease in the creditor’s account and a decrease in the company’s cash account.

The journal entry will also include the date of the partial payment and the details of the transaction. This will help to ensure that the transaction is properly accounted for and the amount paid is accurately recorded. The journal entry should also include any applicable taxes or fees associated with the partial payment.

In the event that the company is unable to make the full payment of the debt, the creditor may agree to accept the partial payment. This will result in the creditor’s account being credited for the amount of the partial payment and the company’s cash account being debited for the remaining balance.

Partial Payment to Creditor Journal Entry

Accounts payable are debts that a company owes to its suppliers for goods or services that it has purchased on credit. When a company makes a payment to a creditor, it is reducing the amount of money that it owes.

If the payment is for the full amount of the accounts payable balance, then the accounts payable balance will be zeroed out and removed from the balance sheet. However, if the payment is only for a partial amount, then the accounts payable balance will be reduced by the amount of the payment, and the remaining balance will remain on the balance sheet.

The journal entry will debit accounts payable and credit cash accounts.

Example

Company ABC has purchased the material amount of $ 120,000 on credit. The company agreed to settle the accounts payable balance within two months. During the month, the company settles a partial amount only which is $ 20,000. Please prepare a journal entry for partial payment to the creditor.

The company has settled some part of the debt based on the cash paid. The company has to record accounts payable and cash based on the actual paid.

The journal entry is debiting accounts payable $ 20,000 and crediting cash $ 20,000.