Accounts Payable

Accounts payable represents the amount that a business owes to its suppliers against goods purchased/ services rendered on credit. It appears on the balance sheet under the head of the current liability.

Recording Accounts Payable

In order to record accounts payable, the accounts department must credit accounts payable when an invoice or bill is received. The debit entry for such a transaction would typically be to an expense account for services/ goods purchased on credit. The debit entry could also be recorded in an asset account if the item purchased is classified as a fixed asset. When a bill is paid to the vendor, the accounts department must debit accounts payable and credit either cash or bank depending on the method used for making payment to the vendor.

Example

If an entity gets a $300 bill for office stationery then its accounts department must credit accounts payable account and debit office stationery by the said amount. When the entity pays $300 to the vendor then the accounts department must debit accounts payable and credit cash/ bank by the said amount.

Difference between Accounts Payable and Trade Payables

Many people use the terms trade payables and account payable interchangeably. Both these terms are similar but used in slightly different circumstances. Trade payables are usually used when a company owes to its vendors against the purchase of inventory. On the other hand, the term accounts payable is used when a company owes to its vendors for purchases other than inventory.