Accounts Payable
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Accounts payable (AP) refers to the money a business owes to its suppliers or vendors for goods and services it has already received but hasn't paid for yet. It sits on the liabilities side of the balance sheet and is considered a short-term obligation, typically due within 30 to 90 days. Managing AP well is essential for maintaining good supplier relationships and keeping cash flow healthy.
In depth
Accounts payable is a core part of a company's working capital management. When a business purchases goods or services on credit, the amount owed is recorded as AP until the invoice is settled. A high AP balance isn't necessarily bad, it can mean a company is effectively using credit terms to preserve cash. However, consistently delayed payments can damage supplier trust and lead to stricter payment terms or loss of credit privileges.
From an accounting standpoint, AP is recorded using double-entry bookkeeping — when a purchase is made on credit, accounts payable is credited and the corresponding expense or asset account is debited. When the invoice is paid, AP is debited and cash is credited, clearing the liability.