– Define Accounts Payable

How do we define accounts payable:

We all use utilities. For example, we take various services from the telephone company, gas company and cable company. They first provide us with the goods and services and, at the end of the agreed billing period, they issue an invoice to the customer. In this case, the utility company is our creditor and provided the service to us on credit. The amount payable to the utility company is the “account payable” to us, which must be paid at very short notice to the utility company (supplier/creditor) to receive continued services.

Similarly, credit is extended in the normal course of business to customers when purchasing goods and services and must be repaid within a given time period in order to avoid default.

Payables are often categorized into “trade payables” and “expenses payable”. “Trade payables” are amounts due from the purchase of physical goods that are recorded in inventory. “Expenses payable” are amounts due for the purchase of goods or services that are expensed. Common examples of accrued expenses are utilities such as telephone and electricity.