Journal Entry for Late Payment Fees

What happens when a company incurs a late payment fee for failing to pay a bill on time? It depends on the situation.
For example, let's say a company purchased $100 of inventory on credit, and the company debited its Inventory account for $100 and credited Accounts Payable for $100 when it received the inventory. Later, if the company fails to pay its bill on time and incurs a late payment charge of $5, the company should debit Late Payment Expense (an operating expense) and credit Accounts Payable.
But what if the company failed to pay the bill on time because it had lost the original invoice, and the accounting department had thus never made the initial journal entry debiting Inventory and Accounts Payable for $100? In that situation, when the company receives the bill saying it now owes $105 (the original $100 plus the $5 late fee) the company would need to debit Inventory for $100, debit Late Payment Expense for $5, and credit Accounts Payable for $105.
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[@harshitsinha2174]

I'm a regular viewer of you channel and you guys always make me regret paying for college tuition. Topics that seemed complex in class and made me feel like a dumb person is easily explained with far better understanding in under 5 minutes on your channel.

[@qatari5898700]

Thank you for your effort

[@tofulosophy]

Great video and explanation.
Question: would the date for the journal entry for the scenario of losing bill be the date of the second notice which includes the late fee?

[@michaelmclaughlin3385]

I'm glad you liked the video! The short answer to your question is yes. For that hypothetical scenario, let's assume the company received the original invoice for the inventory purchase on January 15 but lost the bill and thus never recorded the $100 payable. Then on February 28, the company receives a second notice saying that it now owes $105 (the original $100 plus the $5 late fee). The company would make a debit to inventory of $100, a debit to late payment expense of $5, and a credit to accounts payable of $105 on February 28 when it became aware of the bill.

[@tofulosophy]

@@michaelmclaughlin3385thank you!