Accounts Payable Liability Definition
When a company purchases goods or services on credit, they record an accounts payable liability. This means the company has an obligation to pay the creditor in the future. Accounts payable liabilities arise when a company buys goods or services on credit. This happens when a company doesn’t have enough cash on hand to pay for the purchase immediately. Instead, the company agrees to pay the creditor at a later date. The terms of the agreement may vary, but usually, the debt must be paid within 30 days.
If a company doesn’t have enough cash to pay its creditors when the bills come due, it may have to take out loans or sell assets to raise the necessary funds. This can put the company in a difficult financial position and make it difficult to meet its other obligations. Therefore, it’s important for companies to manage their accounts payable liabilities carefully.
