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What is Accounts Payable?

Accounts Payable (AP) is the short-term liability a business records when it buys goods or services on credit from a supplier. It represents money owed — typically due within 30 to 90 days — and appears on the balance sheet under current liabilities. Managing AP well protects cash flow and supplier trust.

When a supplier invoice arrives and is approved, the bookkeeper credits the Accounts Payable account and debits the relevant expense or asset account. The debt stays on the books until it is paid, at which point Accounts Payable is debited and Cash is credited. This cycle — receive, approve, post, pay — is one of the most repeated workflows in any business, so even small delays or errors compound quickly across hundreds of invoices a month.

Healthy AP management means paying on time to keep supplier terms and early-payment discounts, but not paying so early that you starve cash flow. Aging reports (0–30, 31–60, 61–90, 90+ days) show which invoices are slipping. Missed payments damage credit, trigger late fees, and can cut off supply — which is why AP automation has become one of the first bookkeeping tasks small businesses hand to AI.

Example

A café receives a €2,400 invoice from its coffee roaster with 30-day terms. The bookkeeper posts it to Accounts Payable and to the Cost of Goods Sold account. Twenty-eight days later, on the due date, the bill is paid — within terms, with no late fee, and the roaster keeps offering the 2% early-pay discount.

Questions

Is Accounts Payable a debit or a credit?

Accounts Payable is a liability, so its normal balance is a credit. When you record a supplier invoice you credit AP (increasing what you owe); when you pay the invoice you debit AP (reducing what you owe) and credit Cash.

What is the difference between Accounts Payable and trade creditors?

In practice they mean the same thing — money owed to suppliers for goods or services bought on credit. "Trade creditors" is the term preferred under IFRS and in UK/EU reporting; "Accounts Payable" is the US GAAP term. Both sit under current liabilities on the balance sheet.

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