Accounts Payable, abbreviated most of the time as AP, is a short-term debt a company owns for goods or services received but not yet paid for. These unpaid bills are recorded under current liabilities on the balance sheet report, and show how much the business owes to suppliers or creditors.Â
This is how it usually works: once an invoice is received, the amount is recorded as an accounts payable entry in the accounting system and remains there until the payment is issued.
AP matters in managing cash flow, financial stability, and relationships with vendors. Keeping up with AP ensures that businesses pay their suppliers on time, so they can possibly score early payment discounts or better credit terms.
Since companies get a clearer picture of their short-term obligations, planning for future expenses and navigating cash flow challenges becomes easier. This is especially useful for businesses that depend on credit to operate, as effective AP management balances money going out with money coming in.
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