What is Payment?

Definition of Payment? 

A payment on account occurs when a customer makes a payment and there is no indication on the payment which invoice is being paid. A payment on account can also refer to an advance payment that is applied to subsequent invoices as they are generated by the recipient.

Keeping Track of a Payment on Account

The seller enters the money into a pending account, deposits the check, and keeps track of all payment details in a file. As further information from clients is gathered, the contents of the pending account are investigated and cleared. The recipient's accounting department must investigate these payments on a regular basis, otherwise its detailed invoice records will grow progressively erroneous over time.

Difference between expenses and payments?

Expenses are costs that have been used up or incurred in the course of producing revenues and/or conducting a firm, according to the accrual method of accounting. A store, for example, will report the cost of products sold as an expense for the period in which the sales happened (even if the retailer has not yet paid for the goods, or had paid for the goods in an earlier period). Some expenses are reimbursements for costs that were paid in a previous period (e.g. depreciation of an asset purchased in a previous year, the allocation of a 6-month insurance premium). Costs incurred in the present period that will be paid in a later period (e.g. current advertising) are also included in expenses.

A payment is a monetary disbursement (usually in the form of a check or currency). Some payments are current period expenses (for example, the rent payment for the current month), but many payments are not. The following are some examples of non-expense payments:

• A $200,000 payment to purchase land adjacent to a business will never be considered an expense.
• Payments to stockholders in the form of cash dividends will never constitute a company's expense.
• Making principal payments to lessen the amount owed on a loan will never be a cost.
• The cost of remitting payroll tax withholdings will never be a cost.
• payments made to reduce liabilities incurred as a result of expenses incurred in previous accounting periods (e.g. payments to reduce interest payable, accounts payable, taxes payable)

Some current-period payments will result in future-period expenses:

• Payments for the construction of a structure that will be operational next year
• Payments for a booth at the trade fair the next year
• Payments for services that will be provided in a future accounting period

Format of Payment Voucher:

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