What Does On Account Mean

What does 'On Account' mean
On account is an accounting term that denotes the partial payment of an amount owed or the purchase / sale of merchandise or a service on credit. For example, if a company purchases $ 5,000 worth of merchandise on account, this refers to purchasing the merchandise on credit and a deferral of payment.

The On Account can also be referred to as On Credit.

BREAKDOWN 'On Account'
When a customer or company carries out a credit transaction, an account known as Accounts Payable is created or increased. Accounts payable refer to the short-term debt that a company owes to another company or to its employees during the course of its business operations. For example, a business that buys $ 10,000 worth of merchandise on credit from another business will have an increase of $ 10,000 in its accounts payable. As you buy more goods, this account will increase. The bill will decrease as the company pays its outstanding bills.

On account can refer to a series of invoice or debt settlement events. When a business pays nothing or only a part of the total payment for the purchase of goods or services, the purchase has been made on account. By On account it can be understood the payment on account in which the payment is made without reference to a specific invoice. For example, a company that receives payment from a customer or that makes the payment to a supplier without a reference attributed to a single invoice will have the payment received or made on account. At a later date, these payments may be partially or fully matched to the related invoice.

Most lenders accept payments on account. All installment payments of any kind, including mortgage payments, could be considered payments on account. Any purchase with credit can be referred to as purchases on account.

A company that owes a supplier, customer or employees for services rendered, will record the total amount as a debit in accounts payable. Purchased on account means an increase in accounts payable, and is used to refer to goods that are purchased on credit. The entry remains until the cash is paid, in full, to the debtor entity. After the company pays the balance, the seller's ledger entry will read as Payment on account.

When the payment is made against an account in such a way that the entry in the accounts payable of the books of a company is no longer pending, it is called Payment on account. The payment on account is always a credit in the general ledger and means a decrease in accounts payable.

see also finance and business knowledge