What is Accounts Payable ?

Definition

Accounts payable refers to the amount a company owes to its suppliers for goods or services purchased but not yet paid for. It is a common short-term liability in a company's operations.

Origin

The concept of accounts payable originated from the widespread practice of commercial transactions. As business activities became more complex and large-scale, companies needed to record and manage unpaid amounts. By the late 19th and early 20th centuries, with the development of modern accounting systems, accounts payable became an important component of financial statements.

Categories and Features

Accounts payable can be divided into trade accounts payable and non-trade accounts payable. Trade accounts payable arise from the purchase of goods or services and typically have short payment terms. Non-trade accounts payable include other types of payables such as rent and taxes. The main features of accounts payable are their short-term nature and liquidity, usually due within a year.

Case Studies

Case Study 1: Apple Inc. frequently discloses changes in its accounts payable in its quarterly reports. By managing accounts payable, Apple effectively manages its cash flow, ensuring sufficient liquidity for research and market expansion. Case Study 2: Walmart, as one of the world's largest retailers, employs a strategy of negotiating longer payment terms with suppliers to optimize its cash flow and working capital.

Common Issues

Common issues investors face when analyzing accounts payable include how to assess the reasonableness of accounts payable and its impact on a company's cash flow. Typically, excessively high accounts payable may indicate payment pressure, while excessively low accounts payable may suggest the company is not fully utilizing supplier credit.