Accounting
Accounts payable
Accounts payable (AP) is the money a business owes to its suppliers and vendors for goods or services it has received but not yet paid for.
What accounts payable means
Accounts payable is the flip side of accounts receivable. When your business receives an invoice from a supplier on credit terms, that amount becomes a payable — money you owe and must pay by the due date. On the balance sheet, AP is recorded as a current liability.
The AP process usually involves receiving the invoice, matching it against the purchase order and delivery, approving it, and scheduling payment before the due date.
Why AP matters
Managing accounts payable well protects relationships with suppliers and your credit standing, while letting you hold onto cash as long as the terms allow. Paying late risks fees and strained vendor relationships; paying early can sometimes earn a discount (like "2/10 Net 30").
For the supplier on the other end, your accounts payable is their accounts receivable — the same invoice, viewed from each side of the transaction.
Example: A bakery receives a $2,000 invoice from its flour supplier on Net 30 terms. That $2,000 sits in accounts payable as a liability until the bakery pays it within 30 days.
FAQs
Frequently asked questions
Is accounts payable a liability?
Yes. Accounts payable is a current liability because it represents money the business owes and must pay, usually within a short period.
What is the difference between accounts payable and accounts receivable?
Accounts payable is money your business owes to suppliers (a liability); accounts receivable is money customers owe your business (an asset).
Related terms
Accounts receivable
Accounts receivable (AR) is the money customers owe a business for goods or services that have been delivered and invoiced but not yet paid for.
Purchase order
A purchase order (PO) is a document a buyer sends to a seller to officially authorize and commit to a purchase, listing the items, quantities, and agreed prices.
Invoice
An invoice is a document a seller sends to a buyer that itemizes goods or services provided and requests payment by a stated due date.
Put it into practice
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