Payable

A payable is an amount that is owed by a company to its suppliers or creditors, typically from the purchase of supplies or inventory (accounts payable), but it can also include amounts owed for other purposes such as bank loans (bank loans payable).
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Definition

In accounting, a “payable” refers to the amount a company owes to suppliers or creditors for goods or services received but not yet paid for. These obligations typically arise from normal business operations and can encompass a variety of debts:

  1. Accounts Payable (AP): Amounts owed to suppliers for goods and services purchased on credit. This is a short-term liability found on the balance sheet.
  2. Bank Loans Payable: Amounts due to banking institutions, typically categorized as either short-term or long-term liabilities depending on the repayment period.

Examples

  1. Accounts Payable Example: Company A purchases $5,000 worth of office supplies from Vendor B. However, it agrees to pay the invoice in 30 days. Until the payment is made, the amount is recorded in Company A’s accounts payable.

  2. Bank Loans Payable Example: Company C takes out a $100,000 loan from a bank, repayable over 5 years. The outstanding loan balance gets categorized under bank loans payable, reflecting a long-term liability.

Frequently Asked Questions (FAQs)

Q1: What is the difference between accounts payable and loans payable? A1: Accounts payable refers to short-term obligations to suppliers for purchasings made on credit, whereas loans payable includes both short-term and long-term financial obligations to lenders such as banks.

Q2: Are payables considered assets? A2: No, payables are considered liabilities because they represent the company’s obligation to pay debts.

Q3: How are payables recorded in financial statements? A3: Payables are recorded on the balance sheet under the ‘current liabilities’ section for short-term payables (due within one year) and under the ’long-term liabilities’ for obligations beyond one year.

  • Accounts Receivable (AR): Amounts due to a company from its customers for goods or services delivered but not yet paid for. These are considered assets.

  • Accrued Expenses: Expenses that have been incurred but not yet paid or recorded, similar to accounts payable but for services or goods received rather than bought on credit.

  • Liabilities: The financial obligations of a business, including payables, accrued expenses, and loans.

Online References

Suggested Books for Further Studies

  1. Intermediate Accounting by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield.
  2. Financial Accounting by Robert Libby, Patricia Libby, and Frank Hodge.
  3. Accounting Made Simple: Accounting Explained in 100 Pages or Less by Mike Piper.

Fundamentals of Payable: Accounting Basics Quiz

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