What is Accounts Payable?
Accounts Payable is the value of money the company owes to other businesses for goods and services it received. The company has already obtained what it purchased, but it hasn’t paid yet.
When companies order and receive products before paying for them with cash, they are purchasing on account. The companies haven’t paid for these accounts yet, but they’ll eventually pay for them. Hence, these accounts are payable. This is why money owed to suppliers and vendors is known as Accounts Payable.
Accounts Payable arise because large companies, especially those in the B2B space, don’t pay at the time of purchase. There’s often days to weeks of gap in between when they receive the order and when they pay. Whereas regular consumers would pay at the point of purchase, large companies would pay 30-90 days later.
Accounts Payable appears on a company’s Balance Sheet under the Liabilities section. It’s a liability because it represents the money a company owes to suppliers. Companies usually have to settle the payment within a year. Meaning, companies usually have to pay suppliers what they owe within a year. Therefore, Accounts Payable is often considered a Current Liability.