Accounts Payable (AP) can be classified into Trade Payables and Non-Trade Payables, depending on the nature of the transaction and relationship with the vendor.
| Aspect |
Trade Payable |
Non-Trade Payable |
| Definition |
Amounts owed to suppliers/vendors for the purchase of goods or services directly related to the company’s core operations. |
Amounts owed for expenses not directly related to the core business activities. |
| Purpose |
Linked to inventory purchase, raw materials, or direct business services. |
Linked to overhead expenses or non-operational costs. |
| Examples |
Purchase of raw materials for manufacturing. |
|
* Goods bought for resale.
* Services tied to production (e.g., freight charges). | - Utility bills (e.g., electricity, water).
* Office supplies.
* Rent payments.
* Legal or consulting fees. |
| Financial Statement Placement | Recorded under Current Liabilities as part of Trade Payables. | Recorded under Current Liabilities as part of Other Payables or Non-Trade Payables. |
| Payment Terms | Often involve specific credit terms (e.g., Net 30, Net 60). | Payment terms may vary, often with less formal credit agreements. |
| Impact on Working Capital | Directly affects working capital management and cash flow. | Indirectly affects working capital but remains essential for managing operational costs. |
Key Takeaways :
* Trade Payables: Directly linked to core business operations (e.g., raw material purchases).
* Non-Trade Payables: Linked to operational or administrative expenses (e.g., rent, utilities).
* Both types are critical for a company's liquidity management and should be tracked accurately.
