When making payments for Accounts Payable of $135,000 and due to the Federal Government of $30,000, how should this be recorded?

When recording the payment for Accounts Payable of $135,000 and the amount due to the Federal Government of $30,000, it is important to properly reflect the reduction of liabilities and the effect on cash. The correct method involves debiting the respective liabilities to reflect their decrease and crediting Cash because cash is being disbursed.

In this case, debiting Accounts Payable and Due to Federal Government eliminates these liabilities from the books, which is appropriate because the payments fulfill these obligations. The total liability being settled amounts to $165,000 ($135,000 for Accounts Payable plus $30,000 due to the Federal Government). By crediting Cash, you're accurately indicating that this amount has been paid out from the cash account.

Overall, this method aligns with the double-entry accounting principle that requires each transaction to balance out, ensuring that total debits equal total credits.