What is Accounts Payable (AP)?
Accounts Payable (AP) represents the short-term liabilities a business owes to its suppliers for goods or services received but not yet paid for. It appears as a liability on the company’s balance sheet and tracks obligations that must be settled within a set time frame.
How Accounts Payable Works
Invoice Received: The business receives a bill for goods or services.
Recording: The amount is recorded in the AP ledger as a liability.
Approval & Payment: The invoice is approved and paid within the supplier’s payment terms, typically 30 to 90 days.
Example
A retailer orders $10,000 worth of inventory, receives the shipment, and records the amount as accounts payable to be settled in 45 days.
Benefits of Accounts Payable Management
Maintains supplier relationships
Optimizes working capital
Allows businesses to negotiate favorable terms