Accounts payable is an accounting term used to describe the money owed by a business to its suppliers. Basically accounts payable is a short term debt and represents an obligation to creditors of either an entity. Accounts payable is classified as a current liability in the balance sheet as payment generally takes place within a short period of time. Accounts payable are usually due within a 30 to 60 day period and usually no interest is charged if the balance is paid on time.
Accounts payable can include such items as expenses, payroll costs, taxes, short term loans, physical goods, advertising, travel entertainment, office supplies, utilities etc.
Accounts payable occurs when a supplier of goods or services delivers ships or provides a service then issues an invoice and collects payment later.
To record and report accounts payable a credit entry is posted to accounts payable when an invoice is identified as payable and debits accounts payable when the payment is made for the invoice received.
While some interchange the terms “accounts payable” and “trade payables” the terms refer to similar but slightly different transactions. Trade payables comprise money owed for business materials and supplies while accounts payable is broadened to include all other short-term debts.
Thus is a newsagent owes money to the supplier of cards or magazines then this inventory forms part of its trade payables, whereas money owed for utilities or payroll related items it would form part of accounts payable. It is not uncommon to have both items reported in the accounts payable category.