Definition
Accounts payable are amounts a business owes its suppliers for goods or services received but not yet paid for. They are current liabilities on the balance sheet and are tracked per supplier, so each bill can be approved, scheduled and paid on time. Managing payables well protects both cash and supplier relationships.
How it works
A supplier bill debits the expense or inventory (and input VAT where recoverable) and credits payables; the payment debits payables and credits the bank. Recording bills when received, not when paid, is what keeps expenses on the accrual basis.
Days payable outstanding (DPO) shows how long you take to pay. Paying later than agreed improves cash in the short term but damages trust and may cost early-payment discounts. Paying much earlier than needed ties up cash.
Good controls: match bills to purchase orders and receipts, require approval before payment, and run a monthly reconciliation of supplier statements against your payables per party. Duplicate payments usually come from paying from a copy of an invoice already settled.
Formula
DPO = Trade payables / Cost of sales x Days in period
Example: bill and payment
A 3,000 stationery bill received on 2 June is paid on 30 June.
| Date | Account | Debit | Credit |
|---|---|---|---|
| 2 Jun | Office supplies expense | 3,000 | |
| 2 Jun | Accounts payable: PaperCo | 3,000 | |
| 30 Jun | Accounts payable: PaperCo | 3,000 | |
| 30 Jun | Bank | 3,000 |