What is accounts payable? Definition, examples and the AP process
For finance managers, controllers and anyone new to AP: what accounts payable is, how to record it, how it differs from receivables, and what a well-run AP process looks like.
Key takeaways
- Accounts payable (AP) is the money a business owes its suppliers for goods or services it received on credit but hasn't paid for yet.
- AP is recorded as a current liability on the balance sheet, because suppliers usually expect payment within 30 to 90 days.
- When an invoice is approved, you debit an expense or asset account and credit accounts payable. When you pay it, you debit accounts payable and credit cash.
- The AP process runs from receiving the invoice through matching, approval, payment and reconciliation. A sponsored analyst report from Ardent Partners puts the average cost at $9.84 per invoice. Best-in-class AP teams process invoices at 79% lower cost than their peers.
- Payables are one side of every credit purchase. The supplier records the same amount as accounts receivable.
On this page
Accounts payable (AP) is the money a business owes its suppliers for goods or services it has received but not yet paid for. It's recorded as a current liability on the balance sheet, because the bills are usually due within 30 to 90 days. "Accounts payable" also names the team and the process that receive supplier invoices, approve them and pay them.
This guide covers what counts as accounts payable, how to record it, three worked examples and the steps of the AP process.
What is accounts payable?#
When a business buys on credit, the supplier delivers first and invoices later on terms such as net 30. The running total of those unpaid supplier invoices is the accounts payable balance. It's a current liability that moves working capital directly: a rising balance means the business is holding cash longer, a falling one means it's paying suppliers down. Finance teams track the pace with days payable outstanding (DPO); the formulas are in how to calculate accounts payable.
Counts as accounts payable
Supplier invoices for inventory and raw materials, equipment and supplies, professional services, freight, and rent, utilities or subscriptions billed by invoice.Doesn't count
Wages owed to employees (accrued payroll), taxes owed (taxes payable), loans (notes payable) and costs incurred but not yet invoiced (accrued expenses).
How to record accounts payable#
AP uses double-entry bookkeeping. Two entries cover the life of most invoices:
| Event | Debit | Credit |
|---|---|---|
| Invoice received and approved | Expense or asset account (for example, inventory, equipment, freight expense) | Accounts payable |
| Invoice paid | Accounts payable | Cash |
Under accrual accounting, the first entry is made when the goods or services are received and the invoice is booked, not when cash leaves the bank.
Accounts payable examples#
Example 1: Equipment bought on credit
A solar installer buys $120,000 of inverters from a supplier on net 60 terms to fit out a new site.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Invoice date | Equipment | $120,000 | |
| Invoice date | Accounts payable | $120,000 | |
| Day 60 | Accounts payable | $120,000 | |
| Day 60 | Cash | $120,000 |
The supplier records the same $120,000 as accounts receivable on its own books, and reverses it when the cash arrives.
Example 2: Partial prepayment
A construction firm hires a trucking company to move equipment for $17,000. It pays $5,000 upfront and gets an invoice for the remaining $12,000 on net 15 terms, so only $12,000 goes to accounts payable:
- Debit freight expense $17,000; credit cash $5,000; credit accounts payable $12,000.
- When the balance is paid: debit accounts payable $12,000; credit cash $12,000.
Example 3: Recurring services
A lender uses an outside firm for property appraisals and gets one consolidated invoice each month. Each invoice is booked to appraisal expense and accounts payable when it's approved, then cleared on the next payment run.
Accounts payable vs accounts receivable#
Accounts payable is what you owe suppliers, a current liability with a normal credit balance. Accounts receivable is what customers owe you, a current asset with a normal debit balance; one company's payable is the other's receivable. The full comparison, with DPO and DSO, is in accounts payable vs accounts receivable.
The accounts payable process, step by step#
Most AP teams follow the same six steps, whether they work by hand or with software.
- Supplier portals
- EDI
- Paper mail
- 01Receive
- 02Capture
- 03Match
- 04Approve
- 05Pay
- 06Reconcile
- ReceiveInvoices arrive by email, supplier portal, EDI or paper mail.
- CaptureVendor, invoice number, dates, line items, tax and totals go into the ERP. This is the step invoice data extraction automates.
- MatchThe invoice is checked against the purchase order and, for goods, the receiving report (2-way or 3-way matching).
- ApproveThe invoice goes to the budget owner your policy names.
- PayApproved invoices are paid by ACH, check, card or wire, timed to the due date or an early-payment discount.
- ReconcilePayments are posted, supplier statements reconciled and the AP subledger tied to the general ledger at month end.
Ardent Partners' State of ePayables 2025, a sponsored analyst report, puts the average cost to process one invoice at $9.84. The same report puts the average processing time at 8.2 days and the average exception rate at 18.4%. Best-in-class AP teams process invoices at 79% lower cost and 79% faster than their peers. Ardent names exceptions (invoices that don't match their PO, lack an approver or are missing data) as the biggest single reason the averages aren't lower.
Why automate accounts payable#
Manual AP work grows with invoice volume: every new supplier means more keying, more chasing approvers and more reconciliation. Accounts payable automation moves the repetitive steps to software.
Manual AP
- Someone keys every invoice from PDFs, scans and email attachments
- Invoices are compared with POs and receipts by eye
- Approvers are chased by email
- Data is retyped into the ERP
Automated AP
- Invoice fields are read automatically, with low-confidence values sent to a person
- Invoice lines are matched to the PO and receipt (on the Enterprise plan) and duplicates are flagged
- Invoices are routed for approval
- Data goes to the ERP through API and webhooks
Docsumo reads invoices with 99% field-level accuracy across 250+ document types and reports 95%+ straight-through processing. It doesn't pay vendors: payments run from your ERP or payments system. For a full walkthrough, see AP process automation.
The bottom line#
Accounts payable is what a business owes its suppliers, recorded as a current liability until it's paid. Recording it is simple: credit AP when an invoice is approved, debit it when you pay. Running it well is harder, and depends on capturing invoice data accurately, matching it to what was ordered and received, and paying on time without paying twice.
Book a demo with a few of your own invoices, or start a free trial.
Frequently asked questions#
What does payable mean?
Payable means an amount is owed and due to be paid, usually by a set date. In accounting, a payable is any short-term amount a business owes, and accounts payable is the payable owed to suppliers for goods and services bought on credit.
Is accounts payable an asset or a liability?
Accounts payable is a liability. It's money the business owes, so it sits under current liabilities on the balance sheet until the invoice is paid.
Is accounts payable a debit or a credit?
Accounts payable has a normal credit balance. A new invoice credits AP and raises the balance; a payment debits AP and lowers it.
What is the difference between accounts payable and accounts receivable?
Accounts payable is what you owe suppliers. Accounts receivable is what customers owe you. One company's payable is another company's receivable. See our AP vs AR comparison.
Are accrued expenses the same as accounts payable?
No. Accounts payable covers invoices you have received. Accrued expenses cover costs you have incurred but haven't been billed for yet, such as wages or utilities at month end.
What does an accounts payable team do?
The AP team receives and records supplier invoices, matches them to purchase orders and receipts, routes them for approval, schedules payments, manages vendor records and reconciles supplier statements.
Sources
First published . Last updated .