Accounts Payables

A current liability generated by buying supplies on credit

Accounts Payables

Accounts payables is considered one of the most liquid forms of the current liabilities on the balance sheet. Also known as AP or A/P, accounts payables is expected to be paid off within a year’s time, or one operating cycle (whichever is longer). AP is generated when a company purchases goods or services from its suppliers on credit. Accounts payables for one entity is often accounts receivables for another.

Accounts Payable Turnover

Accounts payables turnover is a key metric used in calculating the liquidity of a company, as well as in analyzing and planning its cash cycle. A related metric is AP days, or accounts payable days. This is the amount of days it takes a company to pay off their AP balance, on average. The cash cycle is the amount of time a company requires cash. This is tied to the operating cycle, which is the total of accounts receivable days and inventory days. The cash cycle, then, is the operating cycle minus AP days.

Reducing Accounts Payables

AP is an accumulation of the company’s current obligation to suppliers and service providers. As such, accounts payables is reduced when a company pays off the obligation. Using double entry accounting, cash is reduced alongside AP. As such, the asset side is reduced for an equal amount compared to the liability side.

Learn more about the Balance Sheet