Accounts Payable In Balance Sheet Definition
Accounts payable is a balance sheet account that represents the amounts that a company owes to its suppliers for goods and services that have been received, but not yet paid for. Accounts payable is a liability because it represents money that the company owes to someone else.
Accounts payable is classified as a current liability on the balance sheet because the debt is typically due within one year. Long-term accounts payable are also possible, but are less common. Accounts payable is recorded when invoices from suppliers are received. The amount of the invoice is then entered into the accounting software, and the accounts payable balance increases. When payment is made, the accounts payable balance decreases.
Accounts payable can be managed in several ways. One method is to simply let the outstanding balances owed to suppliers grow until they reach a certain point, at which time payment is made in full. This method is often used with small businesses that do not have enough cash on hand to pay their bills as they come due. Another method is to make partial payments on outstanding invoices as soon as they are received, and then pay the remainder of the balance when it comes due. This latter method saves interest costs and keeps accounts payable balances low, which can be helpful in maintaining good relationships with suppliers.
