Define Accounts Payable
Payables are often categorized as “Trade Payables” & “Expense Payables”. “Trade Payables” are the monies due for the purchase of physical goods that are recorded in Inventory. “Expense Payables” are the monies due for the purchase of goods or services that are expensed.
How do we define Accounts Payables:
We all use utilities. For example we take various services from the phone company, the gas company and the cable company. They provide us the goods and services first and as the end of the agreed billing period they raise an invoice on the customer. In this case the Utility Company is our Creditor and they have provided us the service on credit. The amount payable to the utility company is the “Account Payable” for us, which needs to be paid in very short-term to the utility company (Supplier/Creditor) to enjoy continued services.
Similarly credit is extended in the normal course of business to the customers on purchase of goods and services and needs to be paid off within a given period of time in order to avoid default.
Payables are often categorized as “Trade Payables” & “Expense Payables”. “Trade Payables” are the monies due for the purchase of physical goods that are recorded in Inventory. “Expense Payables” are the monies due for the purchase of goods or services that are expensed. Common examples of Expense Payables are utilities like telephone and electricity.
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