{"id":22898,"date":"2020-12-27T10:30:56","date_gmt":"2020-12-27T05:00:56","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=22898"},"modified":"2025-01-10T18:23:23","modified_gmt":"2025-01-10T12:53:23","slug":"understanding-the-concept-of-account-payable","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/understanding-the-concept-of-account-payable\/","title":{"rendered":"Understanding the Concept of Account Payable"},"content":{"rendered":"\n<p class=\"has-drop-cap\">When an organization buys out goods on credit which requires to be paid back in a specific period of time is recognized as <a href=\"https:\/\/corpbiz.io\/accounts-payable-service\" title=\"Accounts Payable Services\"><strong>Account payable Service<\/strong><\/a>. Account payable is treated as liabilities and it used to be mentioned under the current liabilities of the balance sheet. In short, the account payable is a debt payment that requires to be paid to avert default.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/understanding-the-concept-of-account-payable\/#What_is_the_Notion_of_Account_Payable_in_India\" >What is the Notion of Account\nPayable in India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/understanding-the-concept-of-account-payable\/#Process_of_Account_Payable_in_India\" >Process of Account Payable&nbsp;in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/understanding-the-concept-of-account-payable\/#Recording_Accounts_Payable_AP\" >Recording Accounts\nPayable (AP)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/understanding-the-concept-of-account-payable\/#Accounts_Payable_vs_Trade_Payables\" >Accounts Payable vs. Trade Payables<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/understanding-the-concept-of-account-payable\/#Accounts_Payable_vs_Accounts_Receivable\" >Accounts Payable vs. Accounts Receivable<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/understanding-the-concept-of-account-payable\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Notion_of_Account_Payable_in_India\"><\/span>What is the Notion of Account\nPayable in India?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>We use the services like telephone,\ncable TV, and electricity quite consistently. Depending on the\nutilization, the service provider generated the bill and then sends it to us at the end of the\nmonth. It means we\nare liable to pay the amount against the said bill before the due date, or else\nyou will have to confront additional charges in the form of penalty. This particular\nnotion is known as account payable.&nbsp;<\/p>\n\n\n\n<p>Now let\u2019s\nunderstand the concept of Account payable from an organization\u2019s\nperspective. Suppose you are an organization A, who buys out goods from,\norganization B on credit. You are agreed to pay the outstanding amount in 30\ndays as per the terms of the contract. Organization B will record this\ntransaction in the form of accounts receivable and organization A i.e. you will\nrecord the purchase as accounts payable, it&#8217;s because company A is liable to\npay the outstanding amount to company B.<\/p>\n\n\n\n<p>As per the general accounting standard, this will be considered\nas sales even in the state of Nil transaction. The accounts department needs to\nadopt a cautious approach while handling the matter like this. Here, time is\nthe key in the view of the fact that the short-term debt needs to be paid out\nwithin a specified timeline.&nbsp;<\/p>\n\n\n\n<p>Apart from time, accuracy also plays a pivotal role here, which advocates the inclusion of the supplier\u2019s name for the said transaction. Accuracy is crucial because it will affect the company\u2019s <em><strong>financial<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Finance\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> standing.&nbsp;<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/outsourcing-of-accounts-payable-services-online-in-india\/\">An overview \u2013 Outsourcing of Accounts Payable Services<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Process_of_Account_Payable_in_India\"><\/span>Process of Account Payable&nbsp;in India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/12\/Process-of-Account-Payable-in-India.png\" alt=\"Process of Account Payable in India\" class=\"wp-image-22911\" width=\"530\" height=\"530\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/12\/Process-of-Account-Payable-in-India.png 1000w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/12\/Process-of-Account-Payable-in-India-150x150.png 150w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/12\/Process-of-Account-Payable-in-India-300x300.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/12\/Process-of-Account-Payable-in-India-768x768.png 768w\" sizes=\"(max-width: 530px) 100vw, 530px\" \/><\/figure><\/div>\n\n\n<p>The accounts\npayable department requires following a set procedure before making payment to\nvendors. Set procedures are critical and important due to the volume and value\nof transactions during any period of time.&nbsp;The process involves the\naccounts payable are as follows:-<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Receiving the Bill<\/h3>\n\n\n\n<p>If goods were\nbought, the bill helps trace the quantity of the same along with the validity\nfactor.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Scrutinizing Bill\nDetails<\/h3>\n\n\n\n<p>Ensure that\nthe bill encloses the date, name of the vendor, authorization, and verified\nrequirement to the purchase order.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Updation of Records Post\nBill Receiving<\/h3>\n\n\n\n<p>Ledger\naccounts require to be updated\ndepending on the received bill &amp; expense entry is typically required.\nManagerial approval is compulsory in such an event.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Making Timely Payment<\/h3>\n\n\n\n<p>All payments\nought to be processed before or at their due date as per the contract&#8217;s terms.\nRequired documents require be drafting and scrutinizing. Particular mentioned\non the cheque, payment voucher, vendor bank details, purchase order, and the\noriginal bill requires to be checked.<\/p>\n\n\n\n<p><em><strong>To ensure a company&#8217;s assets and cash are protected, the account payable process must possess internal control to:-<\/strong><\/em><\/p>\n\n\n\n<ul>\n<li>Prevent a fraudulent invoice<\/li>\n\n\n\n<li>Prevent an inaccurate invoice<\/li>\n\n\n\n<li>Prevent dual payment for the same invoice<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Recording_Accounts_Payable_AP\"><\/span><strong>Recording Accounts\nPayable (AP)<\/strong><strong><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Proper double-entry bookkeeping seeks to offset for debit and credit into the general ledger. In order to get a record account payable, the accountant credits the said account after receiving the invoice. The debit offset for such an entry is basically to an expense account. However, debit can also be to an asset account in case of a purchase of capitalizable assets. As soon as the bill is paid, the accountant debits the account payable to lower down the liability balance. Likewise, the offsetting credit is also made to cash account for the same purpose i.e. to decrease the cash balance.&nbsp;<\/p>\n\n\n\n<p>For instance, suppose a business receives an Rs 10,000 invoice for office supplies. As soon as the accounting department gets the invoice, they record the amount in the account payable and into the expense section of the book. The Rs 10,000 debit to expense navigates through cash statement even in the state of non-payment. This is in the view of accrual accounting, where expenses are acknowledged when incurred instead of when cash changes hands. The company then paid out the bill, and the accounting department records a Rs 10,000 credit to the cash account and a debit for Rs 10,000 to the account payable.<\/p>\n\n\n\n<p>An organization may have several open payments due to vendors.\nSuch outstanding payments go into an account payable. Consequently, if anyone\nscans the balance, they will see the amount of business owes all its short-term\nlenders and vendors. This total amount would be visible on the balance sheet.\nFor instance, if the aforesaid company also received an invoice regarding lawn\ncare services of Rs 2000, the total entry in account payable would be equivalent\nto Rs 12,000 prior to the payment of those debts.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Accounts_Payable_vs_Trade_Payables\"><\/span><strong>Accounts Payable vs. Trade Payables<\/strong><strong><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There is a common misconception that &#8220;accounts\npayable&#8221; and &#8220;trade payables&#8221; are similar terms. Indeed, they do\nappear alike but they bear a marginal difference. The trade payables contain\nthe money a company owes its vendor, meanwhile account payable is refers to\nshort-term debt and obligations.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Understanding the differences through an Example<\/h3>\n\n\n\n<p>If a gym owes money to a supplement company, those items fall\nunder the category of inventory and thus part of its trade payable, On the\nother hand, obligations to other entities, for instance, the company that deals\nwith the cleaning of staff member uniforms comes under the account payable\ncategory. Either of the categories comes under the larger accounts payable\ncategory, and many organizations infuse both under accounts payable.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Accounts_Payable_vs_Accounts_Receivable\"><\/span><strong>Accounts Payable vs. Accounts Receivable<\/strong><strong><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Account payable and <a href=\"https:\/\/corpbiz.io\/accounts-receivable-services\" title=\"Accounts Receivable Services\"><strong>account receivable<\/strong><\/a> are opposites, Account payable is the money an organization owes its vendors; meanwhile account receivable is the money that is owed to the organization, particularly by customers. When one organization transacts with another company, one will post an entry to account payable in <a href=\"https:\/\/corpbiz.io\/bookkeeping-services\" title=\"Bookkeeping Services\"><strong>bookkeeping<\/strong><\/a> record meanwhile other records the entry to account receivable.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Account payable is regarded as a liability in the accounting term. It comes into the existence when a company order goods or services without paying money upfront, which imposes a liability on the company. Account payable is not confined to the organization only; it applies to an individual as well.&nbsp;<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/outsourcing-accounting-services-for-business\/\">Prerequisite of Outsourcing Accounting Services for Business<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When an organization buys out goods on credit which requires to be paid back in a specific period of time is recognized as Account payable Service. Account payable is treated as liabilities and it used to be mentioned under the current liabilities of the balance sheet. In short, the account payable is a debt payment [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":22909,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[128],"tags":[1364],"acf":{"service_id":"296"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":4176,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/22898"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=22898"}],"version-history":[{"count":7,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/22898\/revisions"}],"predecessor-version":[{"id":68271,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/22898\/revisions\/68271"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/22909"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=22898"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=22898"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=22898"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}