Accounts Payable – What Is Accounts Payable?

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What Is Accounts Payable?

When firms make purchases on credit, the money owed is recorded as accounts payable. Accounts payable is a form of short-term financing. For example, if the purchase is for $500,000, and the firm is given 45 days to make the payment, then in effect, the firm has obtained an interest-free loan of $500,000 for a term of 45 days. As individuals, we typically also have a balance of accounts payable at any point in time. An obvious example is the credit card balance before the due date. Since it is a form of financing, no wonder we all prefer a longer due time for our credit card payment.
See also “Accounts Receivable.”

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