Accounts payable

An account payable (AP) is an individual's or corporation's financial obligation to pay off a debt in full 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).

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 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.

See Also

Accounts receivable