What are Accounts Payable?

Accounts payable refers to the money owed for a good or service that a company has purchased on credit. It is a liability to the company. It represents a payment obligation and must count against any income. 

 Accounts payable are classified based on the time period of financing, short-term (under a fiscal year) or long-term payables (over a fiscal year). Long-term accounts payable are reclassified as short-term payables if the loan matures in the next fiscal period.

Example of Posting to Account Payable

If a healthcare company needs a new sterilizer machine worth twenty thousand dollars, they could finance it through a company free of VAT. there would be a note on the debit side for the purchase amount of twenty thousand dollars against the suppliers’ account. The debt has been agreed to be paid in ninety days. The suppliers would then issue the healthcare company a commercial credit for ninety days, simplifying the financial process without involving financial institutions.

Related Topics

• What are Current Liabilities? – Financial Accounting
• How to Record Accounts Payable (Liability Accounts)? – Financial Accounting
  • Accounts Payable Subsidiary Ledger Definition
  • Accounts Payable Turnover Ratio Definition
• What are Notes Payable? – Financial Accounting
• What are Employee Payroll Liabilities? – Financial Accounting
• Estimated Liabilities (Warranties) – Financial Accounting
• What are Contingent Liabilities? – Financial Accounting