Recording expenses, bills and supplier payments

Bookkeeping Basics / Lesson 6

Paid now or paid later

If you pay at the time of purchase, by cheque, debit or card, record an expense (or a cheque): the expense account and the payment account in one step. If the supplier sends a bill to pay later, enter the bill when it arrives, then record the bill payment when you pay it.

Entering bills when they arrive gives you an accounts payable aging: a list of what you owe and when it is due, so you can plan cash and avoid late fees.

Credit card purchases

A business credit card is a liability account. A purchase on the card is an expense (debit) and an increase in what you owe the card company (credit). Paying the card is not an expense: it lowers the card balance and the bank.

Expense or capital purchase?

Things used up within the year, such as supplies, rent, fuel and repairs, are expenses. Things that last for years, such as a truck, a machine or a computer, are usually fixed assets. They are recorded on the balance sheet and their cost is spread over their useful life as depreciation (in Canada, capital cost allowance for tax).

• United States: the IRS de minimis safe harbor lets many small businesses that elect it expense items costing up to $2,500 each (per item or invoice). Larger items are depreciated, though Section 179 and bonus depreciation can let you deduct much of the cost in the first year.
• Canada: capital property goes into a CCA class with its own rate. Small tools costing less than $500 each fall in class 12 and can generally be deducted in full.

Your accountant will set your policy. In the books, the entry for a $4,800 equipment purchase is a debit to Equipment and a credit to bank or a loan, not a debit to an expense.

Vendor credits and prepaid expenses

• Vendor credit: the supplier owes you, for example for returned goods. Record it against the supplier (debit accounts payable, credit the expense) and apply it to their next bill.
• Prepaid expense: you pay $1,800 for a year of insurance in January. Record it as a prepaid asset, then move $150 a month to insurance expense, so each month carries its fair share.

Paying contractors: collect the paperwork first

United States. Ask each contractor for a Form W-9 before you pay them, so you have their legal name and taxpayer ID. For payments made in 2026, you generally file Form 1099-NEC for a contractor you paid $2,000 or more for services (the threshold was $600 before). Payments made by credit card or through a payment network are reported by the card company instead.

Canada. There is no W-9 equivalent, but keep the contractor's name, address and business or social insurance number. Fees for services paid to self-employed individuals may need a T4A slip, generally when the total is over $500 in the year. Construction businesses report subcontractor payments on the T5018.

When the owner pays a business cost personally

If you pay a $60 business expense from your personal card, record it as the expense (debit) and either an owner contribution (credit) or an amount the business owes you, which it can repay you. Keep the receipt either way.

Key terms

• Bill
• Accounts payable (A/P)
• Vendor credit
• Prepaid expense
• Fixed asset
• Depreciation
• 1099-NEC
• Purchase order (PO)

Try it

• Purchase order template: Agree prices with a supplier before the bill arrives.
• Depreciation and CCA calculator: See how a capital purchase is spread over the years.
• Form 1099-NEC guide: Who gets one for 2026 and when it is due.
• T4A slip guide: Fees for services paid to individuals in Canada.

Sources

• IRS: Tangible property final regulations (de minimis safe harbor)
• IRS: Instructions for Forms 1099-MISC and 1099-NEC
• CRA Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income

Part of Bookkeeping Basics, a free course from AcboBooks LLC. General information, not tax, legal or accounting advice. Last reviewed October 25, 2026.