What is accounts payable?
Accounts payable is money owed by an entity to its vendors/suppliers for the goods and services received. It is recorded on the balance sheet as a liability as the purchases are made on credit and not by paying upfront. Accounts payable is not restricted to businesses, even individuals have them.
How does accounts payable work?
Accounts payable works on a five-step process. First, it creates your chart of accounts. Then, it sets up your vendor details. After this, the bill details are entered and examined. In the fourth step, the invoice is reviewed and paid for. And, then the process repeats all over again.
Why accounts payable is important in the company?
Accounts payable is important to maintain a company’s cash flow. For example: If AP increases, it means the company is purchasing goods and services only on credit. If AP decreases, it means the company is making lesser purchases on credit while also paying its debts on time.
