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  • Writer's picturePriyanka Dang

What is Accounts Payable?

Accounts Payable and Accounts Receivable are the two common terms you will hear while talking with any accountant. We'll talk about Accounts Payable today and cover Account Receivables in the next post.

In any business, whether manufacturer or service provider, materials/goods or services are purchased from suppliers or service providers (also called vendors) for making end products or rendering services to end customers. For this purpose, rates, payment terms, and other terms and conditions like quantity, specifications, and delivery requirements are negotiated with vendors and incorporated into agreements called purchase orders or service orders.

Accounts payable refers to the outstanding payments due to vendors as per agreed payment terms. In simple words, it's the money you owe or need to pay to others!

Accounts payable entry must be made in financial books when purchasing goods or services on credit. Account payable is computed after matching of following:-

  1. Purchase order released by the company

  2. The invoice received from the vendor

  3. Goods or service receipt document certifying acceptable quantity received.

These accounts payable are a current liability in Balance sheets or a debt owed to a vendor or creditor. It gets knocked off on the payment release, but periodic reconciliation is needed between the company and vendor as differences can arise due to rate amendments, effective dates or deductions towards rejections or shortages in supplies or services

and tax differentials, etc. Timely payments and accurate management of accounts payable are crucial for maintaining healthy business relations with vendors and thus ensuring the continuity of incoming supplies and services.


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