Accounts Payable

An account payable is an account that presents a credit balance in the balance sheet of the company.

The origin of these accounts derives from certain operations, such as the purchase of material goods, the receipt of a service or expenses incurred among others. Therefore, these represent a payment obligation for the company to its creditors and suppliers.

These accounts payable represent a credit granted to the company for the development of its economic activity. In this case, the credit is granted by a provider without the intermediation of a financial entity. Therefore, these accounts payable represent a form of financing for the economic activity of the company free of interest. From the point of view of the company that has granted the loan, the accounts payable will be considered the opposite (accounts receivable).

Depending on the period of time available to settle the payment obligation, these may be classified as short-term accounts payable (less than 12 months) or as long-term accounts payable (greater than 12 months). Long-term accounts payable should be reclassified at the end of the economic period as accounts payable in the short term, if the debt expires in the next 12 months.

Example of account payable accounting

Assume that company X has acquired goods worth € 20,000. to company Y. Suppose further to simplify that the sale is VAT free and that company X issues a commercial effect payable within 90 days.

First, a note is made on the debit with the merchandise purchase account for € 20,000. Against the suppliers account. The debt is to be settled through a commercial effect within a period of 90 days. To reflect this, the supplier account would be canceled against the supplier account, commercial effects to be paid.

In this way the company Y would be financing the purchase of the merchandise to the company X having granted a commercial credit for 90 days.