What is the meaning of Accounts Payable?

Accounts Payable refers to an accounting entry which stands for an obligation of an entity to pay-off short-term debt to its creditors to avoid default. It is a liability and thus is put under the header of current liabilities in balance sheets of many firms. It is treated as a liability because the company orders goods or services without making cash payment for it to the creditor. Thus, the goods and services so purchased are bought on credit as no cash was paid upfront or at the time of use.

Also, the usage of household needs like electricity, telephone, broadband, DTH networks etc. are done in advance and the bills are generated at the end of the month. The service providers of these give services before they charge or take payment for the same. This also becomes Accounts Payable for the users of these.

Hence, both specific time of payment and the accuracy of the amount to be paid are the buzzwords in these as both will determine the cash position of the creditor.

 

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