Definition:
Accounts payable (A/P or AP), or trade payables, is money owed to others for products or services the company has purchased on credit. Accounts payable is a current liability since these debts are paid off in less than a year.
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Example:
Let’s say you just spent $2,000 on a training program. If you have no other accounts payables, your balance sheet would add $2,000 to the accounts payable line.
Then when you pay for your training program your $2,000 will show as a decrease in cash and a decrease in accounts payable.
Book Excerpt:
(Excerpts from Financial Intelligence, Chapter 12 – On the Other Side)
Accounts payable shows the amount the company owes its vendors. The company receives goods and services from suppliers every day and typically doesn’t pay their bills for at least thirty days. The vendors, in effect, have loaned the company money. Accounts payable shows how much was owed on the date of the balance sheet.
