Money Matters

What is accounts payable? Definition, examples, and how it works

Learn what accounts payable means, how AP is recorded, how it affects cash flow, and what to look for in accounts payable software.

Published September 30, 20269 min read Share

This article was originally published on April 4, 2025 and has been refreshed and re-published with new content on September 30, 2026.

If your business buys something on credit and hasn’t paid for it yet, that unpaid balance is called Accounts Payable (AP). The same term also covers the finance function that manages related obligations like reviewing invoices, getting them approved, and paying them on time.

Accounts payable is more than a bookkeeping balance. It shows how much your business currently owes suppliers and how much of your available cash may already be committed to upcoming payments. For example, a business may have $20,000 in its bank account but also have $8,000 in supplier invoices due that month. Tracking accounts payable shows how much of that cash will be needed for upcoming payments, so the business can plan around it.

Understanding what AP means, how it is recorded, and how payment timing affects cash can help you keep your books accurate and your supplier obligations under control.

Key takeaways

• Unpaid supplier invoices for credit purchases are usually shown among current liabilities until they are settled.
• AP can describe a liability or the team and processes used to review invoices, approve them, and make supplier payments.
• Payment terms influence the timing of cash outflows, making payables an important part of short-term cash planning.
• Accurate AP records, clear approval controls, and the right software can make it easier to track what is owed and manage supplier payments.

Here’s what we’ll cover

What does accounts payable mean in accounting? 

In accounting, accounts payable is the amount your business owes suppliers or vendors for goods or services already received on credit. AP stands for accounts payable and can refer either to this liability or to the finance function that manages supplier invoices and payments.

The AP balance normally appears under current liabilities. A payable is created when your business receives goods or services now but agrees to pay the supplier later; the amount remains in accounts payable until that payment is made.

What does accounts payable do? 

The accounts payable function keeps track of what your business owes and helps make sure valid supplier invoices are recorded, approved, and paid according to agreed terms.

Day to day, AP teams may:

• Verify supplier invoices and supporting information.
• Record approved amounts as liabilities.
• Route invoices to the appropriate people for approval.
• Schedule and process payments based on due dates and payment terms.
• Review supplier balances and resolve mismatches, duplicate invoices, or other exceptions.

These steps help keep accounts payable records accurate and supplier payments under control. The full accounts payable process covers the workflow from receiving an invoice through approval and payment.

Accounts payable versus bills payable

No, not always. Accounts payable is the common accounting term for amounts owed to suppliers for goods or services bought on credit, while “bills payable” can be used differently depending on the accounting system or context.

Comparison point	Accounts payable	Bills payable
Typical meaning	Amounts owed to suppliers for goods or services purchased on credit.	Meaning can vary; it may be used for supplier bills or, in some contexts, a more formal written obligation to pay.
Terminology	A widely used accounting term with a clear meaning.	Less consistently defined across accounting systems and sources.
What to check	Supplier invoices and amounts recorded as accounts payable.	How the term is defined in the relevant accounting system, agreement, or source.

Because “bills payable” is not used consistently, don’t assume it always represents a separate type of liability from accounts payable. Check the terminology being used in the specific accounting context.

What are some accounts payable examples? 

Accounts payable examples include inventory, supplies, and services that a business receives now and pays for later under agreed credit terms.

For instance, consider a retailer that receives $5,000 of inventory from a supplier with payment due in 30 days.

When the inventory arrives and the purchase is recorded, the retailer has received $5,000 of value but has not yet paid for it. The business therefore records a $5,000 accounts payable liability.

Until the retailer pays the invoice, that $5,000 remains part of the AP balance. When the retailer pays the supplier, the liability is cleared and cash leaves the business.

Other common examples of accounts payable include:

• Office supplies purchased from a vendor on credit.
• Professional services that have been completed and invoiced but not yet paid.
• Cleaning or maintenance services invoiced after the work is completed.

In each example of accounts payable, the business has received the goods or services and still owes the supplier for them.

How is accounts payable recorded in accounting? 

Accounts payable bookkeeping uses double-entry accounting to record both what the business received and what it now owes. When an invoice creates a new AP liability, accounts payable increases with a credit. When the business pays the invoice, accounts payable decreases with a debit.

Using the $5,000 inventory purchase above, the accounts payable journal entry would look like this:

Transaction	Account	Debit	Credit
Inventory received on credit	Inventory	$5,000
	Accounts payable		$5,000
Supplier invoice paid	Accounts payable	$5,000
	Cash		$5,000

The first entry records the inventory received and the new liability. The second clears that liability when the supplier is paid.

How does an invoice move through accounts payable? 

A typical invoice moves through five stages in the AP workflow:

1. Receive the invoice. The supplier sends an invoice for goods or services provided.
2. Verify the details. The business checks the amount and supporting records, such as a purchase order or receiving information where applicable.
3. Record the payable. The approved invoice is entered into the accounting records as an amount owed.
4. Schedule payment. The payment date is set according to the supplier’s agreed terms and the business’s payment controls.
5. Pay and clear the liability. When payment is made, the AP balance is reduced and the invoice is marked as settled.

Regular accounts payable reconciliation can help confirm that supplier balances, invoices, payments, and accounting records agree.

This forms part of the wider account reconciliation process, which helps check that balances in your accounting records agree with the supporting information.

How does accounts payable affect cash flow?

Accounts payable affects cash flow because it creates a gap between receiving goods or services and paying for them. During that period, the business still has the cash, but it also has an upcoming obligation that needs to be planned for.

Using agreed payment terms can give a business time to coordinate outgoing payments with incoming cash. But that does not mean paying as late as possible is always the best choice. Paying after the agreed due date can lead to fees or supplier disputes, while paying early may make sense when a supplier offers a worthwhile discount.

The goal is to manage payment timing in line with agreed terms, available cash, supplier relationships, and any early payment discounts offered.

What is the accounts payable turnover ratio? 

The accounts payable turnover ratio measures how often a business pays suppliers relative to its average accounts payable balance during a period.

A common formula for this is:

A higher ratio indicates more frequent supplier payments, while a lower ratio indicates less frequent payments.

Neither result is automatically good or bad. A high ratio may reflect prompt payment, but it can also mean the business is paying earlier than its supplier terms require. A low ratio may reflect either longer negotiated terms or difficulty meeting payments. Trends should be considered alongside payment terms, cash availability, and the circumstances of the business.

Another way finance teams look at payment timing is Days Payable Outstanding (DPO), which estimates the average number of days a business takes to pay its suppliers. DPO and AP turnover measure supplier-payment activity differently, so both need to be interpreted alongside payment terms, cash availability, and the circumstances of the business.

What should accounts payable software help you do? 

Accounts payable software should help you reduce manual invoice work, keep approvals moving, track what is due, and maintain clear payment controls. Which features matter most will depend on where your existing AP process slows down or creates unnecessary manual work.

AP need	Software feature
Less manual data entry	Invoice and data capture
Faster approvals	Approval workflows
Better invoice checks	Purchase order matching, duplicate detection, and audit trails
Clear payment visibility	AP reporting and due-date tracking
Easier supplier payments	Payment scheduling and payment-method support
Connected financial data	Accounting or enterprise resource planning integrations

AP automation software should support a clear accounts payable process rather than replace basic controls. Finance teams still need to review exceptions, unusual invoices, changes to supplier information, and other transactions that require judgment.

Frequently asked questions about accounts payable

What’s the difference between accounts payable and accounts receivable?

Accounts payable is money your business owes suppliers, while Accounts Receivable (AR) is money customers owe your business. AP is recorded as a liability, while AR is recorded as an asset.

For a closer comparison, read our guide to accounts payable and accounts receivable.

How does accounts payable affect the balance sheet, income statement, and cash flow statement? 

Accounts payable appears as a current liability on the balance sheet. AP itself is not an expense: the related expense or asset is recorded separately when the underlying purchase is recognized.

Accounts payable can also affect reported operating cash flow because changes in the amount owed to suppliers change the timing of cash payments. When a supplier is ultimately paid, cash decreases; the precise cash flow statement treatment depends on the underlying transaction.

Is accounts payable a credit or debit?

Accounts payable normally has a credit balance because it is a liability. When a new payable is recorded, AP increases with a credit; when the business pays the supplier, AP decreases with a debit.

What’s the difference between accounts payable and accrued expenses?

Accounts payable usually relates to supplier invoices that have been received and recorded. Accrued expenses are costs the business has already incurred but has not yet been invoiced for, so the amount is recognized before the supplier bill arrives.

What does an accounts payable deposit mean?

“Accounts payable deposit” is not a standard standalone accounting term. Depending on the context, it may refer to a supplier deposit or prepayment that is later applied to an invoice.

Check the transaction and the terminology used in your accounting system before deciding how the amount should be classified.

Final thoughts

Accounts payable starts with a straightforward accounting idea: your business has received something of value and still owes the supplier for it. Keeping AP accurate also helps you understand upcoming payments, manage cash more deliberately, and maintain reliable financial records. Clear approvals, payment timing, reconciliation, and review controls all support that process.

See how Sage Intacct accounts payable software can help reduce repetitive invoice work, manage approvals and payments, and give finance teams clearer visibility into accounts payable.

Browse more topics from this article

• Accounting 101
• Boss your business
• Business strategy
• Cash Flow
• Stay competitive