What does Accounts Payable represent?

Accounts Payable represents amounts owed by a company to its suppliers or vendors for goods and services that have been acquired but not yet paid for. This is classified as a liability on the balance sheet, indicating the company’s obligation to pay these debts in the future. When a company receives goods or services, it typically does not pay cash immediately; instead, it records an account payable until payment is made.

This concept underscores the nature of business operations, where companies often rely on trade credit to manage cash flow. The bills from suppliers create a responsibility to settle these debts, and thus, accounts payable is a critical element in assessing a company's short-term financial health and liquidity.