Accounts Payable (AP) refers to the amount of money a company owes to its suppliers or vendors for goods and services received but not yet paid for. It represents a short-term liability on the company's balance sheet and arises from credit purchases made by the business.
Key Points About Accounts Payable :
* Liability Account : Recorded under Current Liabilities on the balance sheet.
* Credit Purchases : Arise from purchases made on credit terms (e.g., Net 30, Net 60).
* Payment Terms : Payments are typically due within an agreed period (e.g., 30, 60, or 90 days).
* Invoice Verification : AP involves verifying invoices with purchase orders and receiving documents (3-way matching).
* Cash Flow Management : Proper management ensures vendors are paid on time while maintaining healthy cash flow.
Example of Accounts Payable :
If a company purchases office supplies worth
Rs. 5,000 on credit from a supplier, the transaction is recorded as:
* Debit : Office Supplies Expense Rs. 5,000
* Credit : Accounts Payable Rs. 5,000
When the payment is made :
* Debit : Accounts Payable Rs. 5,000
* Credit : Cash/Bank Rs. 5,000
