Which One Should You Use?

Understanding when to record an expense versus a payable keeps your books accurate and your financial reports meaningful. Both track money leaving your business, but they serve different purposes and appear in different places in your reports. This guide helps you decide which one to use.

The Simple Difference

The difference comes down to one question: Has the money already left your account?

• Expense – Already paid. The money has left your account and the transaction is complete.
• Payable – Not yet paid. You have a bill with a due date that needs to be tracked until it's settled.

Think of a payable as a bill sitting on your desk waiting to be paid. It has a due date, and you need to monitor it until it's settled. An expense, on the other hand, is already done and dusted.

Quick Reference

Use this table to quickly decide which to record:

• Paid immediately at point of purchase → Record as Expense
• Received a bill with a due date → Record as Payable
• Credit card purchase (already charged) → Record as Expense
• Invoice from a vendor with payment terms → Record as Payable
• Reimbursed an employee on the spot → Record as Expense
• Employee submitted a claim awaiting reimbursement → Record as Payable

When to Record an Expense

Record an expense when money has already left your account. These are completed transactions with no due date to track. The payment is done, and you simply need to record it for your books.

Common examples of expenses:

• Office supplies – You buy stationery at the store and pay with your company card
• Client meals – You pay for a business lunch and settle the bill immediately
• Immediate reimbursements – You reimburse an employee for their taxi receipt on the spot
• Prepaid services – You top up your prepaid mobile plan or pay for a subscription upfront
• Freelancer payments – You pay a contractor for completed work via bank transfer
• Petty cash purchases – Small purchases made with cash from your petty cash fund

In all these cases, the money has already been spent. There's no bill to track or due date to monitor.

When to Record a Payable

Record a payable when you have a bill with a due date that you haven't paid yet. These represent money you owe and need to track until they're settled. Payables help you stay on top of upcoming payments and plan your cash flow.

Common examples of payables:

• Rent – Your landlord sends a rent invoice due at month-end
• Supplier invoices – A vendor delivers goods with 30-day payment terms
• Utility bills – You receive your electricity or internet bill due in 14 days
• Employee claims – Staff submit expense claims awaiting reimbursement at month-end
• Professional services – Your accountant or lawyer invoices you for services rendered
• Subscriptions with invoices – Annual software subscriptions billed with payment terms

In all these cases, you've received a bill but haven't paid it yet. You need to track the due date to ensure timely payment.

How They Affect Your Financial Reports

Expenses and payables appear in different places in your financial reports because they represent different things financially.

Expenses appear on your Profit & Loss Statement

The Profit & Loss (also called Income Statement) shows how much money your business earned and spent over a period of time. Expenses reduce your net income because they represent money that has been spent. When you record an expense, it immediately affects your profitability for that period.

Payables appear on your Balance Sheet as Liabilities

The Balance Sheet shows what your business owns (assets) and what it owes (liabilities) at a specific point in time. Payables show up as liabilities because they represent money you owe to others. They don't affect your Profit & Loss until you actually pay them.

The Payable-to-Expense Flow

When you record a payment against a payable, here's what happens:

1. You create a payable when you receive the bill (appears on Balance Sheet as a liability)
2. You track the payable until the due date
3. You record a payment against the payable when you pay it
4. The payable status changes to Paid
5. An expense is created and recorded against your payment account
6. The amount now appears on your Profit & Loss Statement

The payable itself stays in your records as a Paid payable for reference. This keeps your payment history intact and provides a complete audit trail of when bills were received and when they were paid.

Why Track Payables Instead of Just Recording Expenses Later?

You might wonder why you shouldn't just record an expense when you eventually pay a bill. Here's why tracking payables matters:

• Cash flow planning – Know exactly how much you'll need to pay and when, so you can plan your cash flow accordingly.
• Avoid late fees – See upcoming due dates at a glance and prioritise payments to avoid penalties.
• Accurate financial position – Your Balance Sheet reflects what you actually owe, giving you a true picture of your liabilities.
• Vendor relationship management – Track your payment history with each vendor and ensure timely payments.
• Audit trail – Keep a complete record of when bills were received, not just when they were paid.

How Officaid Helps

Officaid simplifies tracking both expenses and payables with automation features that save you time.

Employee claims are consolidated into payables

When employees submit expense claims for reimbursement throughout the month, Officaid automatically combines them into a single payable due at month-end. For example, if an employee claims $100 on 12 January and another $100 on 24 January, you'll see one payable of $200 due on 31 January. This reduces the number of individual payments you need to process.

Payroll automatically creates expense records

When you process salaries through the Payroll module, Officaid automatically creates expense records for salary payments, CPF contributions, and other payroll-related costs. You don't need to manually record each employee's salary as a separate expense.

Common Mistakes to Avoid

Here are some common mistakes when deciding between expenses and payables:

• Recording everything as expenses – If you only record expenses, you won't know what bills are outstanding or when they're due. You'll miss the visibility needed for cash flow planning.
• Recording both for the same transaction – Don't create a payable and then also record a separate expense when you pay it. When you pay a payable, Officaid handles the expense automatically.
• Recording payables for instant purchases – If you paid immediately (like swiping your credit card at a store), just record an expense. There's no bill to track.
• Forgetting to pay payables – Creating a payable doesn't pay the bill. Make sure to record the payment when you actually settle it.

Frequently Asked Questions

What's Next?

Now that you understand the difference, explore these related guides:

• How to Record an Expense – Record payments you've already made
• Creating a Payable – Track bills you need to pay in the future
• Managing Expense Categories – Organise your spending for better reporting