Alternatively, if there are few payables, they may be recorded directly in the general ledger. When individual accounts payable are recorded, this may be done in a payables subledger, thereby keeping a large number of individual transactions from cluttering up the general ledger. This accounting is used in a double-entry bookkeeping system. When the liability is paid, the entry is a debit to the accounts payable account (thereby eliminating the liability) and a credit to the cash account (reducing the balance in that account). The normal accounting for accounts payable is to debit either the expense or asset account associated with a purchase, and credit the accounts payable account (which is a liability account). When a business is short on cash, management frequently mandates that the payment of accounts payable be delayed, since this represents a no-interest loan from suppliers. Given these cash flow considerations, suppliers have a natural inclination to push for shorter payment terms, while creditors want to lengthen the payment terms. When accounts payable are paid, this is a use of cash. The term can also refer to the department that processes payables.Īccounts payable are considered a source of cash, since they represent funds being borrowed from suppliers. If accounts payable are not paid within the payment terms agreed to with the supplier, the payables are considered to be in default, which may trigger a penalty or interest payment, or the revocation or curtailment of additional credit from the supplier. Accounts payable is the aggregate amount of one's short-term obligations to pay suppliers for products and services that were purchased on credit.
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