Accounts payable is a term used in accounting to refer to the money that a company owes to its suppliers. This money may be owed for goods or services that have been received, or it may be owed for expenses that have been incurred. Accounts payable is typically recorded as a liability on a company’s balance sheet.
When a company purchases goods or services on credit, the supplier will send an invoice to the company. The invoice will list the amount that is owed, as well as the terms of payment. The company will then record the invoice as an accounts payable.
Accounts payable must be paid within a certain period of time, which is typically 30 days. If the accounts payable is not paid within this time frame, the company will be charged interest or late fees.
There are a few different ways that a company can manage its accounts payable. One option is to pay the invoices as they are received. This is called the accrual method. Another option is to wait until the end of the month and then pay all of the invoices that are due. This is called the cash method.
The accrual method is the most common way to handle accounts payable. With this method, the company records the expense as soon as it receives the invoice. This means that the expense will be recorded in the month that it was incurred, even if the company does not actually pay the invoice until the following month.
The cash method is less common, but it can be used in certain situations. With this method, the company does not record the expense until it actually pays the invoice. This means that the expense will be recorded in the month that it was paid, rather than the month that it was incurred.
There are a few advantages and disadvantages to each method. The accrual method provides a more accurate picture of the company’s financial position, because it records expenses in the month that they are incurred. However, this method can create cash flow problems, because the company may not have the money available to pay the invoices when they are due.
The cash method is less accurate, because it does not record expenses in the month that they are incurred. However, this method can help to improve cash flow, because the company does not have to pay the invoices until they are actually received.