Accounts payable

Definition

Accounts payable are short-term liabilities that a company owes to its suppliers for goods or services received but not yet paid for. They are recorded on the balance sheet under current liabilities.

5 Must Know Facts For Your Next Test

1. Accounts payable are considered current liabilities because they are typically due within one year.
2. They represent an obligation to pay off a short-term debt to creditors or suppliers.
3. Efficient management of accounts payable is crucial for maintaining good cash flow and supplier relationships.
4. Accounts payable should be distinguished from notes payable, which are formal written promises to pay a certain amount in the future.
5. Delays in paying accounts payable can result in late fees and damage the company's creditworthiness.

Review Questions

• What distinguishes accounts payable from notes payable?
• Why are accounts payable categorized as current liabilities?
• How can efficient management of accounts payable benefit a company?

Related terms

Current Liabilities:

Obligations that a company needs to settle within one year.

Notes Payable:

Written agreements where a borrower formally agrees to pay back borrowed money at a future date, often with interest.

Accrued Expenses:

Expenses that have been incurred but not yet paid by the end of an accounting period.