QandAs: Legal

What is an Accounts Payable?

Answer:
Many goods and services are provided to companies on credit,

with an understanding that the vendor's bill or invoice will be paid within a designated number of days, typically 30. These bills, invoices and other regular outgoing expenses are all considered accounts payable, and are recorded on a bookkeeping ledger under the heading "Accounts Payable".

There are certain services such as utilities which are regularly scheduled debts but vary from month to month. When the utility company submits a bill to a business, there is an agreement that it will be paid within a specified amount of time. That utility bill is often sent to an accounts payable department, along with a number of other invoices and bills due to be paid. At some point, an accountant in charge of accounts payable will examine all of the documents to make sure the bills and invoices are valid, then authorize the issuance of checks. There may be a security system in place which prevents an individual accounts payable department worker from both authorizing and signing the checks issued to vendors. This ensures that at least two company representatives have reviewed the invoices and bills and authorized payment. An unscrupulous accounts payable accountant could create fake invoices for non-existent services or goods, so there are a number of checks and balances in place.

Most of us deal with accounts payable in our own households, even if we weren't aware the process had an official name. Bills from newspaper carriers, phone companies, landlords, utility providers, cable television services are all considered accounts payable, since the vendor provided a service or good on credit and expects a payment within a specified period of time. Whenever you sit down and write out checks to pay bills or make an electronic payment on a credit card, you are actually reconciling accounts payable. Essentially the money to pay the bill is deducted from the account on paper even if the actual creditor has not been paid. This is one reason why company accountants working in the accounts payable department must exchange information with those who work in the accounts receivable department to make sure the outgoing expenses are not going to negatively affect the amount of income due through accounts receivable.


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