Accounts Payable is a Liability. It represents the purchase of goods or services that a company has not yet paid for. The company has created an obligation to pay. A liability has a normal credit balance. A liability increases on the credit side and decreases on the debit side. Accounts Payable amounts are generally paid within 30 days, based on the terms the vendor sets for payment. Accounts Payable is listed on the Balance Sheet in the Current Liabilities section.
What is an Example of Accounts Payable?
A company purchases $10,000 of Inventory on account. The terms of the sale are the vendor expects payment in 30 days. The journal entry to record the purchase is:
When 30 days have passed, the company pays the vendor the full amount due. The journal entry to record the payment is:
The amount in the Accounts Payable account is decreased to show the company no longer owes this money to the vendor. The bill has been satisfied.
What is the Difference Between Accounts Payable and Accounts Receivable?
Accounts Payable is used for purchases from vendors and suppliers. Accounts Receivable is used to record sales to customers or clients. Accounts Payable is a liability, an obligation to pay. Accounts Receivable is an asset, a promise from a customer that the business will receive cash.