Accounts Payable

Module 3:
Cash, Receivables, Payables

Duration:
45-60 minutes

Level:
Beginner to Diploma-Level

➛ Define Accounts Payable

➛ Identify transactions that create accounts payable

➛ Record accounts payable transactions correctly

➛ Distinguish between Accounts Payable and Notes Payable

➛ Understand how Accounts Payable appears in financial statements

➛ Explain the importance of managing payables

➛ Accounts Payable
➛ Creditor
➛ Trade Payables
➛ Credit Purchase
➛ Current Liability
➛ Invoice
➛ Due Date

Accounts Payable represents short-term debts owed to suppliers for purchases made on credit.

Examples
➛ Buying inventory on credit
➛ Receiving utility services before paying
➛ Purchasing office supplies on account

➛ It is a current liability
➛ Usually settled within 30-90 days
➛ No interest is charged | unlike notes payable
➛ Created by credit purchases
➛ Recorded from supplier invoices

Example
Bought goods worth $2,000 on credit.



When payment is made

Balance Sheet
Accounts Payable ➧ Current Liabilities section

Income Statement
No direct appearance | only related expenses appear

State whether Accounts Payable is increased, decreased, or not affected

➛ Bought inventory on credit
➛ Paid supplier in cash
➛ Purchased equipment using a bank loan
➛ Paid electricity bill
➛ Received goods with invoice due in 30 days

Indicate whether Accounts Payable is debited or credited

➛ Buying supplies on credit
➛ Paying a supplier
➛ Returning goods to a supplier
➛ Recording a supplier invoice

Prepare journal entries for

➛ Purchased office supplies worth $600 on credit

➛ Paid $400 to a supplier

➛ Bought inventory $1,200, half cash and half on credit

Classify each as Accounts Payable, Notes Payable, or Not a Liability

➛ Supplier invoice
➛ Bank loan agreement
➛ Salaries owed to employees
➛ Owner investment
➛ Utility bill unpaid

A stationery shop buys goods worth $8,000 from a supplier on credit. The supplier allows payment within 60 days.

Questions

➛ What account is created by this transaction?

➛ Is it a current or non-current liability?

➛ What journal entry is recorded at purchase?

➛ What happens to Accounts Payable when payment is made?

➛ Where does this appear in the financial statements?

➛ What is Accounts Payable?

➛ Is Accounts Payable an asset or a liability?

➛ True or False | Accounts Payable usually earns interest.

➛ Which document creates Accounts Payable?

➛ Where does Accounts Payable appear in the balance sheet?

---

Answers ➧ Here

---

Notes Payable ➧ Here