What is Accounts payable?

Accounts payable (Definition)

Accounts payable keeps track of a businesses’ debts to third parties. The term is used to define a short-term financial obligation and liability incurred because of a company's purchase of goods or services from a vendor or supplier on credit. It can include things like electricity, telephone, and internet. Keeping track of accounts payable ensures you are not getting into unnecessary debt, showing when you have received a bill from a service provider and when it is due (keeping in mind that if it isn’t paid by that date, you may be penalized). In a balance sheet, accounts payable is crucial to managing the cash flow of a business. If the overall figure increases from period to period (for example, quarterly), that means the company is buying more goods on credit. If it decreases, the company is paying debts off faster and using cash, which is often a sign the business is doing well financially.