Accounts payable is a term used in accounting to refer to the amount of money that a company owes to its suppliers and creditors for goods and services that have been purchased on credit. This type of liability is typically recorded on the company's balance sheet, and it represents a short-term obligation that the company is expected to pay within a relatively short period of time, such as within 30 or 60 days.
Here is an example of how accounts payable might work in practice:
Suppose that a company called ABC Inc. purchases $10,000 worth of office supplies from a supplier called XYZ Inc. ABC Inc. agrees to pay the amount within 30 days, so the supplier extends credit to ABC Inc. for the purchase. In this case, ABC Inc. would record the purchase on its balance sheet as an accounts payable liability of $10,000, with XYZ Inc. as the creditor.
Once the 30-day period has passed and ABC Inc. has paid the $10,000 to XYZ Inc., the accounts payable liability would be removed from the balance sheet and replaced with a cash payment. The transaction would also be recorded in the company's general ledger as a debit to the accounts payable account and a credit to the cash account.
This is just one example of how accounts payable works, and the specific details of a transaction can vary depending on the circumstances. However, the basic idea is that accounts payable represents money that a company owes to its creditors for goods and services that have been purchased on credit.
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