Accounts Payable.

In plain English

Accounts payable (often shortened to AP) is the total money your business owes to others for products or services you have already received but not yet paid for. When a supplier sends you an invoice on payment terms, that amount sits in accounts payable until you pay it. It is counted as a liability on your balance sheet because it is a debt you must settle. Managing accounts payable well means paying on time to keep good relationships while holding onto your cash as long as the terms reasonably allow.

01Why it matters

Tracking accounts payable keeps you from missing payments, racking up late fees, or damaging supplier relationships, and it shows you how much cash you actually need on hand to cover what you owe.

02The math, step by step

A bakery receives $3,000 of flour and supplies in May on 30-day terms. That $3,000 is accounts payable until the bakery pays the supplier. Paying it on day 30 instead of day 1 lets the bakery keep that cash working for almost a month.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT