What is Accounts Payable?

Accounts Payable (AP) is an accounting term that refers to the money a business owes to its suppliers or vendors for goods or services that have been received but not yet paid for. It represents a liability for the business, as it represents an obligation to pay off the amount owed in the future.

Features of Account Payable:

• Credit Purchases: Accounts Payable arise when a business purchases goods or services on credit terms from its suppliers or vendors. Instead of paying cash upfront, the business agrees to pay for the purchases at a later date, typically within a specified period.
• Short-Term Liability: Accounts Payable are generally short-term liabilities, meaning they are due for payment within a relatively short period, often within 30 to 90 days from the date of the invoice. However, the exact payment terms can vary depending on the agreement between the buyer and the seller.
• Recorded in the Balance Sheet: Accounts Payable are recorded as a current liability on the balance sheet of the business. They represent the amount owed to creditors as of the reporting date, reflecting the company’s obligations that need to be settled in the near future.
• Routine Business Transactions: Accounts Payable typically arise from routine business transactions, such as purchasing inventory, supplies, or services necessary for the operation of the business. These transactions occur regularly as part of the normal course of business operations.
• Invoice Documentation: Accounts Payable are supported by invoices or purchase orders received from suppliers or vendors. These documents provide details about the goods or services purchased, the agreed-upon prices, and the terms of payment.

Accounts Payable and Notes Payable represent money owed by a business. Accounts Payable are typically informal obligations arising from routine transactions with suppliers, whereas Notes Payable are more formal, structured agreements often involving specific terms, maturity dates, and possibly interest payments.