when payment is made against an account such that the entry in the accounts payable of a company s books is no longer outstanding it is referred to as paid on account payments made on account decrease accounts payable as a debit entry to the account most lenders will accept payments on account 
for example if a business purchases 5 000 worth of merchandise on account this refers to the purchase of the goods on credit and deferral of payment the business will have an increase in its accounts payable of 5 000 this means that the business will owe 5 000 for the purchase of the merchandise since they have not rendered payment at the time the goods were delivered types of on accounton account can refer to several bills or debt settlement events on account could refer to payment on account in which payment is made against a certain customer s account without any reference to a specific invoice payments on account are often made for purchases on account where the customer has not yet received a bill or invoice they are common in industries in which it is common for businesses to purchase goods and services on credit example of on accountfor example a customer has a 20 000 outstanding balance due to a vendor the customer makes a 10 000 payment to the vendor with no reference attributed to an individual invoice the payment made will be applied against the outstanding balance as a whole at a later date the payments can be partially or fully matched to the related invoice usually customers are given a specific period in which to make full payment on a specific invoice even when credit is extended it is very important for accuracy of accounting to keep accurate records of all accounts payable and accounts receivable and to match payments on account with their relevant invoices as soon as can be done so the maintenance of accurate records and the proper classification of payments allows accounting ledgers to be correctly reconciled at the end of the month quarter or year 