A:

Accounts payable is a liability, not an expense. The two represent related but ultimately different concepts. The balance of accounts payable is commonly included in total expenses when reviewing a company's financial statements. The best way to understand how to distinguish between liabilities and expenses is by analyzing past versus future actions; liabilities are those obligations that are yet unpaid, while expenses are obligations that have already been paid in an effort to generate revenue.

Liability Account Vs. Expense Account

Liability and expense accounts both appear on financial statements. Liabilities are covered on the balance sheet, which shows a snapshot of a company's financial standing for a specific date. Expenses show up on the income statement. The income statement itemizes revenues and expenses to show net income for a period of time.

An example of an expense transaction would be any cost that might be incurred while a salesperson is trying to bring in revenue. Lodging, client dinners, transportation and materials for presentations are all added to the expense account.

Liability accounts are any costs incurred that haven't yet been paid. These include interest owed on loans from creditors (interest payable) and taxes that have built up that the company expects to have to pay (taxes payable).

Accounts payable involves any money owed to creditors that will come due in a short period of time – usually less than 30 days – that doesn't involve a promissory note. A mortgage obligation wouldn't be added to accounts payable because it came with a promissory note; mortgage obligations fall under notes payable.

RELATED FAQS
  1. How are accounts payable listed on a company's balance sheet?

    Find out how accounts payable is listed on a company's balance sheet, why it is considered a current liability, and how it ... Read Answer >>
  2. Are accounts payable counted as revenue?

    See how accounts payable is treated on the balance sheet, and why it is considered an expense and liability rather than revenue ... Read Answer >>
  3. Are accounts payable an asset?

    Find out why the general ledger accounts payable is considered to be a current liability, not a current asset, and how it ... Read Answer >>
  4. What's the difference between accrued expenses and accounts payable?

    Learn how companies use accrued expenses and accounts payable on their balance sheet and the difference between the two liabilities. Read Answer >>
  5. What is the difference between an accrual and an account payable?

    Understand the difference between an accrual and an account payable. Learn how an accrual and an account payable affect a ... Read Answer >>
  6. What is the difference between accrual accounting and accounts payable?

    Understand the difference between accrual accounting, an accounting method, and accounts payable, which is a ledger entry ... Read Answer >>
Related Articles
  1. Investing

    Explaining Noncurrent Liabilities

    Noncurrent liabilities are financial obligations a company owes a year or more into the future.
  2. Taxes

    What is a Tax Liability?

    Tax liability is the amount of money a person or entity owes to the government as the result of a taxable event.
  3. Investing

    Spotting Creative Accounting On The Balance Sheet

    Companies have ways of manipulating their balance sheets that investors should be aware of.
  4. Investing

    Days Payable Outstanding

    Days Payable Outstanding, or DPO, is an accounting measurement that tells the average number of days it takes a company to pay its suppliers and vendors. Days Payable Outstanding is widely used ...
  5. Taxes

    Understanding Deferred Income Tax

    Deferred income tax is a liability on a balance sheet that reflects income tax that is allocable to the current period, but has not yet been paid.
  6. Taxes

    Deferred Tax Liability

    Deferred tax liability is a tax that has been assessed or is due for the current period, but has not yet been paid. The deferral arises because of timing differences between the accrual of the ...
  7. Investing

    How to Analyze a Company's Financial Position

    Find out how to calculate important ratios and compare them to market value.
  8. Personal Finance

    Common Liabilities That Hurt Your Net Worth

    Every penny that you keep out of the liability side of the net worth equation essentially ends up on the asset side.
  9. Investing

    Evaluating Your Personal Financial Statement

    Determine your net worth by making your own cash flow statement and balance sheet.
RELATED TERMS
  1. Liability

    Liabilities are defined as a company's legal debts or obligations ...
  2. Other Current Liabilities

    A balance sheet entry used by companies to group together current ...
  3. Income Tax Payable

    A type of account in the current liabilities section of a company's ...
  4. Due To Account

    A liability account typically found inside the general ledger ...
  5. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  6. Deferred Income Tax

    A liability recorded on the balance sheet that results from income ...
Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an ...
  3. Salvage Value

    The estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting ...
  4. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  5. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center