Accounts Payable

An account payable (AP) is an individual's or corporation's financial obligation to pay off in full a debt that it owes to another financial entity. In simple accounting, accounts payable are often used as a general term for debts and liabilities, and because of this, they are often recorded as such (see below).^[1]

On Financial Statements[edit]

Because they represent debt that an individual or business organization owes to another such entity, accounts payable are virtually always listed in the liabilities section on a balance sheet. As such, they subtract from the net value of a financial entity because they represent a debt. This is opposed to accounts receivable, which increase the net value of an individual or company because they represent an asset.
Accounts payable are short-term liabilities. They are not to be confused with notes payable, which are long-term debts.

Examples[edit]

• When you purchase a home with a mortgage through your bank, you now possess an account payable. You owe the bank your monthly payment, and because this represents a personal debt for you, it is classified as an account payable. The bank, however, would record an account receivable, as these two are considered opposites in simple accounting practices.
• Any time you take out a loan or you use a credit card to purchase a good or service, you are creating an account payable for yourself, as you are taking on a debt owed to another business entity.
• Examples of accounts payable for a small business would be: utility bills, payments owed to vendors who provided services or goods to the business, lease payments on equipment.

See also[edit]

• Accounts receivable

References[edit]

1. ↑ http://www.investopedia.com/terms/a/accountspayable.asp Accounts Payable