Page Title

Accounts Payable

Accounts payable are the unpaid bills of the business; the
money you owe to your suppliers and other creditors. The
sum of the amounts you owe to your suppliers is listed as a
current liability on your balance sheet.

You will often see Accounts Payable abbreviated as A/P.

If you use the accrual basis of accounting, as we recommend,
expenses are recorded in the cash disbursements journal at
the time the goods or services are purchased, even if you buy
on credit. If you deal with a given supplier many times during
the month, you don't have to record every purchase. You
could accumulate all bills for the month from that supplier,
then record one transaction in the purchases journal at the
end of the month.

You should keep an accounts payable ledger account for
each supplier. Expenses from the cash disbursements journal
are, at the end of each day, posted to the appropriate
accounts payable ledger. The accounts payable ledger is a
record of what you owe each vendor.

The general ledger contains an accounts payable account,
which is your accounts payable control account. The cash
disbursements journal has accounts payable credit and debit
columns. Credit purchases and payments on account are
entered in these two columns, respectively. At the end of the
month they are totaled and posted to the control account in
the general ledger.

Accounts payable ledgers. Accounts payable ledgers will help
you control your expenditures and payables. If you maintain
accurate payable ledgers, it will be easy for you to double
check the bills you get from your suppliers.

At the end of the month, reconcile your accounts payable
ledgers with the accounts payable control account. The
control account is the total accounts payable balance from
your general ledger. The beginning accounts payable total,
plus purchases on account during the month, minus payments
on account during the month, should equal the ending
accounts payable total. Compare this amount to the sum of
the individual accounts payable ledgers. This will help you
discover any errors you made in recording your payables. A
reconciliation might also help you catch any errors on vendor
bills.

An accounts payable aging report is a good cash
management tool that should be prepared periodically. It will
help you plan the timing and amount of your cash
disbursements.