Don’t know what the meaning of accounts payable is when it’s used in accounting? I’m going to explain to you the definition of what accounts payable is in simple and plain English.
You can watch the video below (2:24) or you can read on.
What’s accounts payable? The meaning of accounts payable is that it is an account that holds all the amounts that you need to pay people. Think of it as a compartment that holds all your IOUs.
Let’s say you own a business. You buy a notebook for $2 to write notes down and you get an invoice that asks you to pay within 60 days. That invoice is kind of like an IOU. Because you haven’t paid for it in cold hard cash yet, but you’ve gotten the notebook, you owe the notebook business $2 for it.
When you have just one bill that you need to pay, it’s quite simple.
But imagine in a business when you have heaps of bills to pay… it gets a bit more complicated than that and that’s where accounts payable is the compartment that tells you how much you still have owing to others and when it’s due.
Let’s look at this with the accounting system. In every event, we record two things that happen, one on the left side and one on the right side (these are debits and credits).
When you get the invoice, you’re going to do two things to record that invoice.
You’re going to note the $2 in accounts payable to signify that this is something that needs to be paid because you’ve already received it.
The other thing would be to record the $2 in the stationary account to say that $2 has been spent (but not paid) in order to get this notebook.
So that’s accounts payable for you, it is just like a holding compartment where you put all your bills in so you can remember who to pay and when to pay them by.
That way, you can avoid angry people who haven’t been paid for the stuff that you’ve received. So that’s accounts payable. Let me know what you think by leaving a comment now.
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