Accounts payable

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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]

Contents

On Financial Statements

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.

Examples

  • 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

References

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