Accounts payable

Accounts Payable (AP) refers to the amount of money a company owes to its suppliers or creditors for goods or services that have been received but not yet paid for. This appears on the company's balance sheet as a short-term debt. Accounts payable are managed by the department responsible for making payments owed by the company to its suppliers.

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Main Points:

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• AP can refer to both the outstanding debts and the department responsible for managing the payments.
• Payables can be created from purchases on credit or subscription/ instalment payments.
• AP is compared with accounts receivable, which is the amount of money owed to the company by its customers.
• Accounts payable are considered as a current liability because they represent funds owed to others.

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For Example, Suppose that a company called ABC Inc. purchases $10,000 worth of office supplies from a supplier called XYZ Inc. ABC Inc. agrees to pay the amount within 30 days, so the supplier extends credit to ABC Inc. for the purchase. 

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In this case, ABC Inc. would record the purchase on its balance sheet as an accounts payable liability of $10,000, with XYZ Inc. as the creditor.

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Once the 30-day period has passed and ABC Inc. has paid the $10,000 to XYZ Inc., the accounts payable liability would be removed from the balance sheet and replaced with a cash payment. 

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The transaction would also be recorded in the company's general ledger as a debit to the accounts payable account and a credit to the cash account.

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