Accounts Payable

What is Accounts Payable?

Accounts Payable (AP) is a liability account on the balance sheet that represents the amounts a company owes to suppliers or creditors for goods and services purchased on credit. These are short-term obligations that a company is required to pay off within a given period to avoid default.

Short Description: A liability account that records amounts a company owes to suppliers for goods or services received on credit.

• Short-Term Liability: Represents obligations that need to be settled within a short time period, typically less than a year.
• Credit Purchases: Involves acquiring goods or services with deferred payment terms.
• Cash Flow Impact: Effective management prevents cash crunches and maintains supplier relations.

Proper management of accounts payable is critical for maintaining good relationships with suppliers and ensuring the company's liquidity. By keeping track of due dates and taking advantage of any offered discounts for early payment, businesses can optimize their cash flow and potentially reduce costs.