accounts payable
/ uh-PAY-uh-bul; abbreviated A/P or AP /
When a restaurant orders vegetables from a supplier, the supplier usually does not demand cash on the spot. It delivers the produce and sends an invoice that says 'pay within 30 days.' For that month the restaurant has the vegetables but has not yet paid — it owes the supplier. That short, informal IOU to a supplier is what accounts payable captures.
Accounts payable is the total amount a business owes to its suppliers and vendors for goods and services bought on credit, where no formal written promissory note is involved — just an invoice and agreed terms. It is a current liability, normally settled within 30 to 90 days. In double-entry bookkeeping, buying inventory on credit increases an asset (inventory) and increases accounts payable; later, paying the supplier decreases cash and decreases accounts payable, clearing the debt. For example, receiving a 4,000 invoice raises payables to, say, 4,000; paying it weeks later brings that balance back to zero.
Accounts payable matters because it is, in effect, free short-term financing from suppliers — the company gets to use the goods now and pay later, easing its cash flow. But it must be managed carefully: paying too late can damage supplier relationships or forfeit early-payment discounts, while a ballooning payables balance can signal that a company is short of cash. Accountants track it closely, often in a subsidiary ledger with one account per supplier.
A print shop receives 6,000 of paper on terms of 'net 30.' It records an increase in inventory of 6,000 and an increase in accounts payable of 6,000. Twenty-five days later it pays the supplier: cash falls 6,000 and accounts payable falls 6,000, back to zero.
Buying on credit and later paying are two separate transactions, each with its own journal entry.
Accounts payable (money you owe suppliers) is the mirror image of accounts receivable (money customers owe you) — do not mix them up; one is a liability, the other an asset.