Accounts Payable Explained

Accounts Payable is a term that simply means you owe money to a supplier of goods or services. You’ve made a purchase on credit, therefore your supplier is a creditor, and Amounts Payable represents an obligation to pay off this short-term debt.

Items that fall under the Accounts Payable heading include stock, utilities, telephone and broadband, so it’s not just the goods you purchase for resale, it’s also things like heating, lighting and communications. Accounts Payable in the books These items are shown as a current liability on the balance sheet, which basically means you owe someone money in the short-term. Although short-term liabilities are said to be repayable within a year, more often than not they’ll be paid off much sooner. Our Financial Literacy Training course explains in detail how to deal with these and other transaction types – all in an easy-to-understand, totally interactive format. How to record Accounts Payable in the books  Within the books, ‘Accounts Payable’ is simply a record of monies owed by you in the short-term. Let’s use goods purchased as an example. Your supplier issues an invoice which is due to be paid within 30 days. The invoice is recorded in Accounts Payable. When the amount is paid an opposite entry is made to reflect the payment. If you didn’t record these amounts, your accounts would provide a misleading picture of your financial health as a business. To learn more about this and other important aspects of business finance, jump on-board our financial literacy training course, Colour Accounting™. Click here to secure your place. [traininglist slug=”colour-accounting-normal”]  ]]>