What are “accounts payable”?

Accounts payable refers to the money a company owes to its suppliers or vendors for goods and services that have been purchased but not yet paid for. This liability is a key component of a company's balance sheet and represents an obligation that the company must fulfill in the future. Essentially, when a business buys products or services on credit, it incurs an accounts payable until it settles that debt.

Understanding accounts payable is crucial for managing cash flow and financial operations within a business. It reflects the short-term financial health of a company and plays a significant role in the working capital management process. When companies assess their financial stability and planning, the accounts payable balance is an important metric that influences cash flow forecasts and payment schedules to maintain good supplier relationships.