Accounts Payable (AP)
Definition
Money your business owes to suppliers and vendors for goods or services you have already received but not yet paid for. It shows up as a liability on the balance sheet.
Want a deeper explanation?
AP is one of your cheapest sources of cash. Every day you can responsibly hold a bill is a day that cash stays in your account, which is why supplier terms matter so much for inventory businesses.
An AP aging report shows what you owe by how old it is. Reviewed weekly, it keeps you from paying early by accident and late by surprise. Watch for: an AP balance that does not match your vendor statements, which usually means missing bills or payments recorded as expenses instead of against the bill.
Example
You receive a $25,000 shipment from your supplier on Net 30 terms. Until you pay it, that $25,000 sits in accounts payable.