What is Accounts Payable (AP)?

Accounts Payable (AP) represents the short-term liabilities a business owes to its suppliers for goods or services received but not yet paid for. It appears as a liability on the company’s balance sheet and tracks obligations that must be settled within a set time frame.

How Accounts Payable Works

  1. Invoice Received: The business receives a bill for goods or services.

  2. Recording: The amount is recorded in the AP ledger as a liability.

  3. Approval & Payment: The invoice is approved and paid within the supplier’s payment terms, typically 30 to 90 days.

Example

A retailer orders $10,000 worth of inventory, receives the shipment, and records the amount as accounts payable to be settled in 45 days.

Benefits of Accounts Payable Management

  • Maintains supplier relationships

  • Optimizes working capital

  • Allows businesses to negotiate favorable terms