Accounts Payable Definition
Accounts Payable is the money a company owes for good or services received which have not yet been paid for.
Accounts Payable is a term that refers to the money a company owes for good or services received which have not yet been paid for. They are classed as a current liabilities and require usually to be paid within short time periods. The term Accounts receivable may also sometimes be found abbreviated as ‘AP'.
An example would be where Company X has sold £10,000 worth of material to Company Y. Company X will ship off the material along with an invoice, Company Y will receive this and be required to pay within the next 60 days. This amount of £10,000 will be credited to Company Y's Accounts Payable. Once the invoice has been paid the £10,000 is expensed via the cash account to offset this.
Where a company’s Accounts Payable is too high, it can mean the company is lax in making payments and clearing what is owed which can have effects on company relations and overall creditworthiness.
Accounts Payable is the opposite of Accounts receivable which is money that is to be received within the next 12 months. A large majority of companies will sell to their customers on credit, whereby the goods and/or services are immediately delivered, and an invoice is raised. Customers/clients would then pay this invoice in a few weeks or months time. The term Accounts receivable may also sometimes be found abbreviated as ‘AR’. It too is also found on the balance sheet however is classed a current asset instead.