Accounts payable (AP) is cash owed by a business to its providers appeared as a liability in an organisation’s accounting report. Accounts payable are distinct from notes payable liabilities, which are obligations made by formal legitimate instrument documents.
In simple terms, the accounts payable are the purchase goods on credit that a company or an organisation needs to be payback in a short period. It comes under the head’ current liabilities’, and we treat accounts payable as a liability. A company or an organisation treats accounts payable as a short term debt that needs to be paid in a limited time frame to avoid being the default.
To understand it in a layman language, assume that you are a consumer and you use services like telephone, internet, electricity, TV network or cable, etc. The service provider provides you services for a month and sends you a bill every month, and you need to pay it between a specific date or time often called due date.
Similarly, if you are an organisation, then there are high chances that you buy services or goods from company B. The final raised amount needs to be exact or paid back before the due date or given the number of days. You will record this data in accounts payable on the other end; company B will enter this data in their accounts receivable records. As per the accounts methodology, this is treated as a sale even we know, no money has been exchanged. It would be of great help if you were very careful while processing transactions for accounts payable. In one business ERP solutions, you will get a smooth and easy to understand interface where you can handle your data related to accounts payable in a straightforward manner—people with excellent subject knowledge designed the software.