What is accounts payable? Definition and examples
The term accounts payable or A/P refers to cash that a business owes its suppliers. Accounts payable appears as a liability account in bookkeeping. It shows how much a company owes sellers or suppliers for products or administrations that it purchased and got using a loan. Using a loan or means, you get the administration or product now and pay later. We allude to this type of arrangement as trade credit.
Put simply; the term refers to unpaid bills.
Accounts payable just refers to momentary obligations – not long haul obligations. Companies have many various types of momentary obligations, including payroll costs (wages or salaries), transient loans, and personal taxes.
Notes payable isn’t the same. Notes payable or promissory notes are obligations that are created by legal instrument records. Be careful, a few people mistakenly utilize the two terms interchangeably.
BusinessDictionary.com has the accompanying meaning of the term:
“Accounts that are owed to suppliers (trade leasers) as recognized from accrued revenue, lease, salaries, taxes, and other such accounts. Accounts payable are appeared under current (present moment) liabilities yet to be determined sheet.”
Speculators, suppliers considering credit terms, and loan specialists (banks) examine the relationship between accounts payable and accounts receivable to decide how well a company manages its finances.
The term may also allude to a company department that is in charge of paying solicitations. In smaller organizations, that may be only one person.
For example, if a supplier calls me asking me why a receipt has not been paid, I may say: “I will call you back about this in 60 minutes. I have to look at with accounts payable to discover.” I then talk to the people or department in charge of paying solicitations.
Accounts payable vs accounts receivable
The term contrasts with accounts receivable, which has the opposite meaning.
Accounts receivable is the cash that a company is owed. On the off chance that your company supplies ACME Inc. with, for example, wood today, and expects to be paid in 30 days, ACME owes your company cash. We place that cash owed in the accounts receivable part of the balance sheet.
All owed cash that will leave a company we allude to as accounts payable, while all owed cash that the company will get from customers and clients is accounts receivable.
The balance sheet
A balance sheet summarizes a company’s assets and liabilities as well as proprietor’s value. The balance sheet points to a given time, which is usually the finish of a year, half-year, or quarter.
Accounts payable appears under current liabilities on the balance sheet.
Things on accounts payable, i.e., solicitations that should be paid, have a date close to them. This date lets us know by when payment must be made to avoid default. To default means to be unable to pay back an obligation.