Accounts Payable (AP)
Quick Answer
Accounts payable is the amount a company owes to its suppliers or vendors for goods and services received but not yet paid for, recorded as a short-term liability on the balance sheet.
Definition
Accounts payable is the amount a company owes to its suppliers or vendors for goods and services received but not yet paid for, recorded as a short-term liability on the balance sheet.
Explanation
Accounts payable represents a company's short-term obligations to its creditors and suppliers. AP is a key component of working capital management, as companies want to optimize payment timing — paying too early reduces cash on hand, while paying too late risks damaging supplier relationships and credit terms.
AP departments manage invoice processing, payment approvals, and payment execution. Many companies use AP automation software to streamline these processes. The accounts payable turnover ratio measures how efficiently a company pays its suppliers.
Example
A company receives a $10,000 invoice from a supplier with net-30 terms. The $10,000 is recorded as accounts payable until the payment is made on day 30, at which point cash decreases and AP is reduced.
Frequently Asked Questions
What is Accounts Payable (AP)?
Accounts payable is the amount a company owes to its suppliers or vendors for goods and services received but not yet paid for, recorded as a short-term liability on the balance sheet.
How does Accounts Payable (AP) work?
Accounts payable represents a company's short-term obligations to its creditors and suppliers. AP is a key component of working capital management, as companies want to optimize payment timing — paying too early reduces cash on hand, while paying too late risks damaging supplier relationships and credit terms.AP departments manage invoice processing, payment approvals, and payment execution. Many companies use AP automation software to streamline these processes. The accounts payable turnover ratio measures how efficiently a company pays its suppliers.
Can you give an example of Accounts Payable (AP)?
A company receives a $10,000 invoice from a supplier with net-30 terms. The $10,000 is recorded as accounts payable until the payment is made on day 30, at which point cash decreases and AP is reduced.