How Do Accounts Payable Show on the Balance Sheet? (2024)

What Are Accounts Payable?

Accounts payableis the amount ofshort-term debt or money owed tosuppliers and creditors by a company. Accounts payable areshort-term creditobligations purchased by a company for products and services from their supplier.

Accounts Payable vs. Accounts Receivable

Accounts payable have payment terms associated with them. For example, the terms could stipulate that payment is due to the supplier in 30 daysor 90 days. The payable is in defaultif the company does not pay the payable within the terms outlined by the supplier or creditor. Accounts payable islisted on a company's balance sheet.

Accounts payable is a liability since it is money owed to creditorsand is listed under current liabilities on the balance sheet. Current liabilities are short-term liabilities of a company, typically less than 90 days.

Accounts payable are not to be confused with accounts receivable. Accounts receivablesaremoney owed to the company from its customers. As a result, accounts receivableare assets since eventually, they will be converted to cash when the customer pays the company in exchange for the goods or services provided.

Accounts receivableare similar to accounts payableinthat they both offertermswhich might be30, 60, or 90 days. However, with receivables, the company will be paid by their customers, whereas accounts payables represent money owed by the company to its creditors or suppliers.

Composition of a Company's Balance Sheet

Abalance sheetreports a company's assets, liabilities, andshareholders' equityfora specific period.The balance sheet shows what a company owns and owes, as well as the amount invested by shareholders.

The balance sheet is broken down into 3 major categories:

Assets

• Cash and cash equivalents
• Marketable securities
• Accountsreceivableormoney owed to acompany by their customers
• Inventory

Liabilities

• Debt includinglong-term debt
• Rent andutilities
• Wages
• Dividendspayable

Shareholders' equity:

• Shareholders' equity isthe amount that would be returned to shareholders if all the company's assets were liquidated and all its debts repaid.
• Shareholders' equity is calculated by taking a company's total assets and subtracting itstotal liabilities.

Real-World Example

To see how accounts payable are listed on the balance sheet, below is an example ofApple Inc.'sbalance sheet, as of the end of their fiscal year for 2017, from theirannual10K statement.

• Current liabilities are highlighted in red.
• Accounts payable for Apple was approximately $49 billion(highlighted in blue).
• Accounts payable wasa significantportionof Apple's total current liabilities of $100.8 billion (highlighted in pink).
• We can see that total current liabilities ultimately filter down into total liabilities of $241 billion (highlighted in yellow).

Other current liabilities can include notes payable and accrued expenses. Current liabilities are differentiated from long-term liabilities because current liabilities are short-term obligations that are typically duein 12 months or less.

The Bottom Line

Accounts payable is considered a current liability, not an asset, on the balance sheet. Individual transactions should be kept in theaccounts payable subsidiary ledger.

Effective and efficient treatment of accounts payable impacts a company's cash flow, credit rating, borrowing costs, and attractiveness to investors.

Companies must maintain the timeliness and accuracy of their accounts payable process. Delayed accounts payable recording can under-represent the total liabilities. This has the effect of overstating net income in financial statements.