Accounts payable is a collection of short-term debt owed to creditors or suppliers.
When company A gives credit to company B, company A records it as an account payable in its books, while the other company B records an account receivable.
Where do I find accounts payable?
It forms part of “current liabilities” or “creditors falling due within one year” on the balance sheet.
Any movement in the accounts payable forms part of the “cash flow from operations” section on the cash flow statement.
What does a change in accounts payable means?
An increase in accounts payable over a previous period means the business is buying more goods or services on credit.
A decrease in accounts payable over a previous period means the business has either paid the owed money or made cash purchases.
Examples of accounts payable
- Purchase of raw materials on credit
- Unpaid contractors wages
- Unpaid business rates, electricity, gas and water bills
What is the difference between accounts payable and accounts receivable?
Accounts payable is monies owed to a businesses’ vendors, whereas accounts receivable are funds owed by the customers to the business, e.g. unpaid customer invoices.