
👾 Game Master
6/17/2022, 5:18:10 AM
Account Payable
Definition of Account Payable (A/P)
Account payable is most often seen under the current liabilities section on the balance sheet. They are liabilities that are needed to be paid within a certain time period for inventories or services that are already received from the suppliers. When an account payable is recorded by company A, a corresponding Account Receivable will also be recorded as the same amount by company B (the supplier of company A).

Position of the account payable on a company’s balance sheet. Picture source: https://www.zetl.com/blog/everything-there-is-to-know-about-accounts-payable/
Why Is It Important?
Account payable is important because if it increases in a certain period, it indicates that the company is buying more goods and services on credit. On the other hand if account payable decreases, it indicates that the company is paying the past period liabilities at a faster rate than buying on credit. Account payable is an important element when managing a company's cash flow.
It is also worth noticing that a large balance of account payable is not necessarily a negative sign. Often, the amount of account payable varies depending on the industry and the life cycle of a company. For example, companies in the real estate industry often take larger accounts payable to finance their development. Also, companies at an early growth and expanding stage associated with high upfront costs often take more into account payables.