What is Accounts Payable?
Accounts Payable is money owed by the company to its suppliers for a service or product already purchased.
Companies typically do business with other companies on credit instead of paying immediately. Typically Accounts Payable is taken from the company’s cash balance within 1 year. For that reason, Accounts Payable is listed as a current liability.
Accounts Payable can be found on the company’s balance sheet statement located in the 10 – K or 10 – Q filing. Accounts Payable is listed under Liabilities because it is a debt owed by the company.
Example below from Intel’s (INTC) 2012 2nd quarter earnings, which can be found on the SEC’s website here.
(click image to enlarge)
Accounts payable is used in addition with other current liabilities on valuation metrics such as:
Interpretation of Financial Statements, Defines Accounts Payable as:
“Accounts payable of the various amounts of money owed by the Corporation to those with whom it does business..”
Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports, Defines Accounts Payable as:
“Accounts payable are bills, generally to other companies for materials and equipment bought on credit, that the Corporation must pay soon.
When it receives materials, the Corporation can either pay for them immediately with cash or wait and lets what is owed become an account payable.
Business to business transactions are most often done on credit. Common trade payment terms are usually 30 or 60 days with the discount for early payment, such as 2% off if paid within 10 days, or the total due in 30 days (“2% 10; net 30″).”
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