Dictionary / Accounts Payable
What does Accounts Payable mean in accounting?
Quick definition
Accounts payable & receivableAccounts payable is the money your business owes vendors for goods or services you already received and have not paid for yet.
Read more below
It sits on the balance sheet as a liability. When you enter a bill in QuickBooks Online or Xero, you increase accounts payable. When you pay the bill, you decrease it and decrease cash.
Examples
A vendor bill you have not paid yet
You receive a $480 invoice from a lighting supplier on March 28 for shop fixtures installed that week. You enter a bill dated March 28 to that supplier, coded to furniture and fixtures (or job materials). Accounts payable increases $480. You pay it on April 10 by ACH. AP decreases $480 and checking decreases $480. In QuickBooks Online this is a Bill, then Pay bills. In Xero it is a Bill, then a payment against that bill.
Using the AP aging to decide who to pay
Your AP aging on April 30 shows $2,150 current, $640 at 31–60 days (a disputed freight bill from a paper supplier), and $0 past 60. You pay current items that earn discounts and call that supplier before the next close. The aging total should match the accounts payable line on the balance sheet.
Why it matters
If AP is wrong, your cash looks healthier than it is and expenses land in the wrong month. A current AP aging is what you use to decide which vendors to pay this week. For the other side of the same idea, see accounts receivable.
Further reading
Compare this term with reference material from other accounting and finance websites.
Keep learning
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What is the difference between accounts payable and accounts receivable?
Payable is money you owe vendors. Receivable is money customers owe you. Payable is a liability. Receivable is an asset. They are not two names for the same account.
What does accounts payable do in the books?
It holds unpaid bills so expenses hit the month you received the work, not the month you happened to pay. Paying the bill later clears AP and cash. It should not create a second expense.
Is accounts payable an expense?
No. The expense is the purchase (supplies, subcontractors, rent). Accounts payable is the unpaid amount of that purchase. When you pay, you reduce AP and cash.
Where does accounts payable show up in QuickBooks or Xero?
On the balance sheet as a current liability, and on the Accounts payable aging report. In QuickBooks Online, Bills and Pay bills feed this account. In Xero, Bills do the same job.