Accounts payable (AP) is an accounting entry that represents an entity’s obligation to pay off a short-term debt to its creditors. On many balance sheets, the accounts payable entry appears under the heading current liabilities. Another common usage of AP refers to a business department or division that is responsible for making payments owed by the company to suppliers and other creditors.
Accounts Payable (AP) Definition | Investopedia. (n.d.). Retrieved from http://www.investopedia.com/terms/a/accountspayable.asp
Here are a few practical examples demonstrating how Accounts Payable (AP) might be applied in business scenarios:
- Company Balance Sheet
“On the balance sheet, accounts payable are listed as a current liability, showing the amount the company owes suppliers for goods received but not yet paid for.” - Internal Department Responsibilities
“The accounts payable department is responsible for processing and tracking all payments owed to external suppliers, ensuring that invoices are verified and paid on time.” - Managing Cash Flow
“Effective management of accounts payable can improve a company’s cash flow by allowing businesses to negotiate favorable payment terms with suppliers.” - Credit Terms and Accounts Payable
“By reviewing accounts payable regularly, financial managers ensure that the company isn’t incurring any overdue charges and maintains good credit terms with suppliers.” - Accounts Payable Example in Action
“If a business receives an invoice for office supplies amounting to $500 with a payment term of 30 days, this amount will be recorded as accounts payable on the balance sheet until it is paid.”