What is a Due To Account
A due to account is a liability account typically found inside the general ledger that indicates the amount of funds payable to another party. The funds can be currently due or due at a point in the future. This due to account usually is generated and put on the books as the result of a transaction. After business receives goods or services from an outside party, if the party providing the services is not paid right away the due to account is created and funds are allocated to it to provide the future payment. The 'due to' account is used in conjunction with a 'due from' account to reconcile from which account the money will be coming, and to which it will be going.
The due to account is also called an account payable.
BREAKING DOWN Due To Account
The general ledger is the centralized source that contains all of the financial accounts for a company. It contains debit and credit accounts, including the due to account and the due from account. The due to account is also sometimes referred to as "intercompany payables" account. When a business receives goods or services from an outside party, if those items aren't paid for immediately the business will create a due to account entry on its books to set aside funds to pay the vendor.
Example of a Due To Account
For example, XYZ Company produces widget presses. One day, their widget press breaks. It turns out there was a defective tuner in one of the crankshafts of the machine. XYZ Company needs to hire a widget press mechanic and also needs to purchase a new tuner for the crankshaft. The tuner arrives with an invoice. The mechanic comes and fixes the machine and says he will send XYZ Company an invoice for his services. XYZ Company would create two due to accounts in its general ledger upon receiving these invoices. Once these invoices were paid the due to accounts would be canceled.