Accounts payable refers to the amounts a company owes to its creditors.

When a company orders goods or services in advance of paying for them, we say that the company is buying on “credit”.  The supplier or vendor is also referred to as a “creditor”.

Accounts payables are liabilities.

Under accrual accounting, the company that receives the goods or service must report the liability on the date they were received.

Qs: Can you explain why an accounts payable is a liability? Think about the criteria for a liability that we discussed in the first module (refer back to your notes if needed)

1.The AP is presently owed – the company owes the amount to a vendor or creditor

2.Results from a past event – the company received a service or a good

3.Will result in an outflow of a resource – the company will need to make a payment, likely using cash

An account payable at one company is an account receivable for another company

Let’s walkthrough the same example as the prior slide but for the company on the other side of the transaction

The customer from the prior example is the company that  receives accounting services in the month of January and receives an invoice from the accounting firm on January 31 for 1,000,000 Rwf. 

The customer agrees to pay by February 28.