accounts payable
Money a company owes to its suppliers and creditors for goods and services received but not yet paid for — a current liability on the balance sheet.
Example
“The company had $2 million in accounts payable — invoices from suppliers due within 30-60 days.”
Memory Tip
Accounts PAYABLE = money you need to PAY (owe to suppliers).
Why It Matters
Understanding accounts payable helps you recognize that businesses operate on credit and do not always pay immediately for supplies. This concept applies to personal finance too, as it shows how delaying payments can improve cash flow while managing obligations responsibly.
Common Misconception
Many people think accounts payable means a company owes money for products it has already sold to customers. In reality, accounts payable specifically refers to money owed to suppliers for items the company purchased for its own operations, not customer-related debts.
In Practice
A coffee shop receives 100 pounds of beans from a supplier on Monday with payment terms of net 30 days, meaning payment is due in 30 days. Until the shop pays, this 2,000 dollar debt appears as accounts payable on its balance sheet, allowing the shop to use its cash for other needs while still acquiring inventory.
Etymology
ACCOUNTS (financial records) PAYABLE (owed, to be paid). Money the company must PAY.
Common Misspellings
Small business accounting made simple
Related Terms
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See Also
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