Understanding Accounts Payable (AP) With Examples and

How to Record AP
By ALICIA TUOVILA

Updated December 19, 2023

Reviewed by

DAVID KINDNESS
Fact checked by

SUZANNE KVILHAUG
0 seconds of 0 secondsVolume 0%

What Are Accounts Payable (AP)?

Accounts payable (AP), or "payables," refer to a company's short-term
obligations owed to its creditors or suppliers, which have not yet been paid.
Payables appear on a company's balance sheet as a current liability.

Another, less common usage of "AP," refers to the business department or

division that is responsible for making payments owed by the company to
suppliers and other creditors.

Accounts payable can be compared with accounts receivable.

KEY TAKEAWAYS

 Accounts payable (AP) are amounts due to vendors or suppliers for

goods or services received that have not yet been paid for.
 The sum of all outstanding amounts owed to vendors is shown as the
accounts payable balance on the company's balance sheet.
 The increase or decrease in total AP from the prior period appears on
the cash flow statement.
 Management may choose to pay its outstanding bills as close to their
due dates as possible in order to improve cash flow.
Investopedia / Alison Czinkota

Understanding Accounts Payable (AP)

A company's total accounts payable balance at a specific point in time will
appear on its balance sheet under the current liabilities section. Accounts
payable are obligations that must be paid off within a given period to
avoid default. At the corporate level, AP refers to short-term payments due to
suppliers. The payable is essentially a short-term IOU from one business to
another business or entity. The other party would record the transaction as an
increase to its accounts receivable in the same amount.

AP is an important figure in a company's balance sheet. If AP increases over

a prior period, that means the company is buying more goods or services on
credit, rather than paying cash. If a company's AP decreases, it means the
company is paying on its prior period obligations at a faster rate than it is
purchasing new items on credit. Accounts payable management is critical in
managing a business's cash flow.

When using the indirect method to prepare the cash flow statement, the net
increase or decrease in AP from the prior period appears in the top section,
the cash flow from operating activities. Management can use AP to
manipulate the company's cash flow to a certain extent. For example, if
management wants to increase cash reserves for a certain period,