Quick Definition
Represents the bills a company owes to its suppliers.
Explanation of Accounts Payable
Listed on the Balance Sheet, Accounts Payable represents the various amounts owed to vendors and suppliers of the company. When the company buys products and services on credit, these unpaid amounts are totaled as Accounts Payable. The company is then obligated to pay these amounts based on the credit policies agreed between the company and its suppliers.
Importance of Accounts Payable
You can expect the Accounts Payable to fluctuate for many companies, as Accounts Payable often increase and decrease along with sales. If over several periods you notice the percentage of Accounts Payable to sales increase, you may have to investigate further. This may be a warning sign the company is not paying its bills on time, or the company is increasingly having to spend more to generate the same number of sales.
