What are accounts payable?

Accounts payable refers to the liabilities that a company incurs when it purchases goods or services on credit from suppliers or vendors. This represents amounts that the organization must pay in the future for those purchases. It is an essential aspect of a company's balance sheet and reflects the company's obligation to settle its debts with suppliers, typically within a short period.

Understanding accounts payable is crucial as it indicates the company's cash flow situation and its ability to manage its short-term liabilities. Maintaining optimal accounts payable levels is important for liquidity management, ensuring that the company can meet its obligations without straining its cash resources.