What is AP aka Accounts Payable?
What are some examples of Accounts Payable?
What is Accounts Payable Important?
Accounts payable is a current liability on the balance sheet that represents money due to vendors or suppliers that have not yet been paid for. Accounts payable are created when a company receives goods or services on credit and is contractually and legally obligated to repay the debts within one year.
It's common practice in many industries, especially those where the average purchase price is in the thousands or millions of dollars, to make sales on credit. This means that companies will enter contracts to buy goods and services and will pay for them (typically as invoices) over the course of the contract, as opposed to at the time of sale. The total amount a company owes to all the vendors and suppliers, which it will be invoiced for and pay over the course of the next 12 months, is known as Accounts Payable.
Accounts payable is a very common current liability on the balance sheet across industries. Here are a few examples:
The most important reason for Accounts Payable to record how much money is owed by a business to its vendors and suppliers. As with any types of debt, its important to understand how much money is owed in comparison to how much money is available, or expected to be available (i.e. through future sales) so that a company is able to meet its obligations. Many Fortune 500 companies with massive supplier networks have entire Accounts Payable departments within their finance organizations to ensure that their debts are managed and paid in a timely manner.