Accounts Payable - AP

AAA

DEFINITION of 'Accounts Payable - AP'

An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable entry is found on a balance sheet under the heading current liabilities.

Accounts payable are often referred to as "payables".

Another common usage of AP refers to a business department or division that is responsible for making payments owed by the company to suppliers and other creditors.

INVESTOPEDIA EXPLAINS 'Accounts Payable - AP'

Accounts payable are debts that must be paid off within a given period of time in order to avoid default. For example, at the corporate level, AP refers to short-term debt payments to suppliers and banks.

Payables are not limited to corporations. At the household level, people are also subject to bill payment for goods or services provided to them by creditors. For example, the phone company, the gas company and the cable company are types of creditors. Each one of these creditors provide a service first and then bills the customer after the fact. The payable is essentially a short-term IOU from a customer to the creditor.

Each demands payment for goods or services rendered and must be paid accordingly. If people or companies don't pay their bills, they are considered to be in default.

VIDEO

Loading the player...
RELATED TERMS
  1. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts ...
  2. Progress Billings

    A series of invoices prepared at different stages in the process ...
  3. Cycle Billing

    The practice of billing different customers based on a scheduled ...
  4. Debt Load

    The amount of debt or leverage that a company is carrying on ...
  5. Cash Book

    A financial journal that contains all cash receipts and payments, ...
  6. Creditor

    An entity (person or institution) that extends credit by giving ...
RELATED FAQS
  1. What's the difference between accrued expenses and accounts payable?

    Accrued expenses are payments that a company is obligated to pay in the future for which goods and services have already ... Read Full Answer >>
  2. How are accounts payable listed on a company's balance sheet?

    Accounts payable, the amount of short-term debt payments a business needs to make to its creditors, is listed under the current ... Read Full Answer >>
  3. What is the difference between accrual accounting and accounts payable?

    Accrual accounting is one of the two primary accounting methods for businesses, cash basis accounting being the other. Accounts ... Read Full Answer >>
Related Articles
  1. Investing

    Accounts Payable

    Accounts payable is the amount of a company's total invoices currently waiting to be paid. These invoices are from vendors for products and services that were recently delivered.
  2. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  3. Investing Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  4. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  5. Personal Finance

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  6. Investing Basics

    Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.
  7. Investing Basics

    Examples Of Asset/Liability Management

    In its simplest form, asset/liability management entails managing assets and cash inflows to satisfy various obligations; however, it's rarely that simple.
  8. Investing Basics

    What Are A Stock's "Fundamentals"?

    The investing world loves to talk about fundamentals, but do you know what it means?
  9. Investing Basics

    How To Evaluate A Company's Balance Sheet

    Asset performance shows how what a company owes and owns affects its investment quality.
  10. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center