Bill's October salary, 1,740 euro, arrives on the last day of the month. On 1 November the money starts to leave: the rent first, 750 euro, then the recurring bills, and the first of 3 instalments on the work clothes he bought on 8 September, 150 euro.
On the bank statement it is one more outflow in a month full of them. In the ledger it is not an expense at all. Bill spent that money almost 2 months ago, on the day he signed the plan.
An expense is recognised when the cost is incurred, not when it is paid. The Conceptual Framework calls this accrual accounting: the effects of a transaction are shown in the period in which they occur, even if the cash moves in a different period.
Bill received the clothes on 8 September, so the whole 450 euro went into the books that day, as a clothing expense and a BNPL payable. The payable is a promise to pay cash later. An instalment is that promise being kept, and keeping a promise is not a new cost. It settles part of a liability: the debt falls from 450 to 300 and the cash falls by the same 150.
Neither line of the second entry is in the income statement. Next to the first one, the instalment reads as its second half: September carried the cost, November carries the cash. The income statement had already been told.
That is also why net assets do not move on 1 November. Cash goes down by 150 and so does the debt, so what Bill owns minus what he owes stays where it was. Only his liquidity changes.
The ledger posts a month when the next one starts, so October closes first. The salary of 1,740 less 730 of recurring costs adds 1,010 to the cash that was left after the rent of 1 October: from 3,072 to 4,082. Against that, the books carry 11 of amortisation on the smartphone, 63 on the certification and 789 on the flat: 709 of depreciation on the right-of-use asset and 80 of interest on the lease liability. October closes with a profit of 147, and net assets rise from 7,100 to 7,247.
Then comes the 1st. The rent of 750 is posted against the lease liability and not against profit: the cost of the flat reaches the income statement as depreciation and interest, 789 in October, and the payment only settles what the liability already carries. The instalment of 150 is posted against the BNPL payable. Together they take cash from 4,082 to 3,182, liabilities from 12,546 to 11,646 and total assets from 19,793 to 18,893. Net assets stay at 7,247.
The salary landed first, so the 4,082 of 31 October was real cash. On 1 November it is 3,182. The BNPL payable stands at 300, and 2 more instalments of 150 follow, on 1 December and 1 January, when the debt clears.
The tip
When an instalment leaves your account, do not count it as spending again. The cost was recorded the day you signed, and the payment only moves cash against the debt. Look for the expense on the date of the purchase, and for the instalments on the date of the debt.
Liability settlement, November 2026: first of 3 instalments on the BNPL plan, 150 paid on 1 November. Dr BNPL payable 150, Cr Cash 150. No income statement movement: the clothing expense of 450 was recorded on 8 September. BNPL payable 450 to 300. October closed on the new structure: salary 1,740, recurring costs 730, lease cost 789, smartphone 11, certification 63, profit 147. Rent of 750 paid on 1 November against the lease liability, now 11,346. Cash 3,182, total assets 18,893, net assets 7,100 to 7,247.
Bill is 26. Every episode, we read his personal ledger through accounting eyes. / FY 2026 ledger