Shawn has a masters of public administration, JD, and a BA in political science.
Nobody likes to have accounts payable, but they are a reality of business. In this lesson, you'll learn the definition of accounts payable, how they fit into a business overall finances and be provided some examples.
Accounts Payable Defined
Accounts payable are monies that are owed to outside individuals and other businesses for goods and services provided. Accounts payable are usually a short-term liability, and are listed on a company's balance sheet. Accounts payable are usually due in 30 to 60 days, and companies are usually not charged interest on the balance if paid on time.
Let's look at some different examples of accounts payable:
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Accounting services: Companies sometimes will hire outside accountants or accounting firms to prepare their books, financial statements, perform audits, and prepare tax returns.
Legal services: Lawyers are often a necessary expense in business. Businesses sometimes will hire outside legal counsel to review or prepare contracts or to represent them during commercial real estate transactions, securities offerings, mergers and acquisitions, and litigation.
Suppliers: Suppliers constitute one of the largest accounts payable for most companies. They supply the business with inventory, raw materials, parts, tools, equipment, and supplies.
Marketing: Some marketing requires outside expenditures, such as the purchase of ad space on the Internet, television, radio and on billboards. Outside advertising and public relations firms may also be retained and will usually bill on a monthly basis.
Utilities: The power company, water company, and gas company need to be paid.
Outsourcing firms: It's not uncommon for companies to hire outside firms to perform part of the production process.
Miscellaneous: There will always be random expenses, such as money for doughnut day, and events like company picnics and sports teams.
Let's review! Accounts payable are short-term liabilities relating to the purchases of goods and services incurred by a business. They generally are due within 30 to 60 days of invoicing, and businesses are usually not charged interest on the balance if payment is made in a timely fashion. Examples of accounts payable include accounting services, legal services, supplies, and utilities. Accounts payable are usually reported in a business' balance sheet under short-term liabilities.
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