Accounts payable

Published Friday 24 July 2026

Table of contents

• What is accounts payable?
• Is accounts payable an asset or liability?
• Accounts payable vs accounts receivable
• How the accounts payable process works
• Simplify accounts payable with Xero
• FAQs on accounts payable
• Related Terms
• Learn more about accounts payable

Key takeaways

• Accounts payable is the money your business owes suppliers and vendors for goods or services bought on credit, and it sits on your balance sheet as a current liability.
• Accounts payable is what you owe others, while accounts receivable is what others owe you.
• Managing accounts payable well helps you avoid late fees, keep good supplier relationships and stay on top of cash flow.
• Automating invoice processing and payment scheduling helps cut the manual work and keeps payments on time.

What is accounts payable?

Accounts payable is the money your business owes suppliers and vendors for goods or services you’ve bought on credit but haven’t paid for yet. It’s recorded as a current liability on your balance sheet.

Think of accounts payable as the unpaid invoices sitting on your desk. Common examples include:

• buying raw materials, inventory or equipment on credit
• paying for electricity, phone, internet or water
• using legal, consulting or maintenance services
• renting office space or equipment

Here’s how it works. When you buy materials from a supplier on credit, they send you an invoice. That amount becomes part of your accounts payable until you pay it. In your supplier’s records, the same invoice shows up as accounts receivable, money they expect to collect from you.

Accounts payable can also mean the team or function that manages these payments. In larger organisations, the accounts payable team handles tasks like:

• reviewing and approving supplier bills
• scheduling payments so bills are paid on time
• answering questions about payment status
• keeping accurate payment histories

In a small business, you might handle accounts payable yourself or pass it to a bookkeeper. Whoever manages it, a solid process helps you avoid late fees, keep good supplier relationships and maintain accurate records.

Is accounts payable an asset or liability?

Accounts payable is a liability, not an asset. More precisely, it’s a current liability on your balance sheet, and it’s a liability rather than an expense.

Accounts payable counts as a liability because:

• you have a legal obligation to pay these amounts
• the money will flow out of your business
• most balances fall due within 30 to 90 days
• it appears under current liabilities, not assets

It sits under current liabilities, which are debts you expect to pay within one year. Knowing this classification helps you manage cash flow and keep accurate records for tax reporting and planning.

Accounts payable vs accounts receivable

Accounts payable and accounts receivable sit on opposite sides of a transaction. One tracks what you owe, the other tracks what you’re owed.

Accounts payable covers:

• money your business owes to others
• unpaid supplier invoices, utility bills and rent
• a liability on your balance sheet

Accounts receivable covers:

• money others owe your business
• customer invoices you’ve sent but haven’t been paid for
• an asset on your balance sheet

Both shape your cash flow. Accounts payable is money going out, while accounts receivable is money coming in.

How the accounts payable process works

A clear accounts payable process helps you pay the right amount to the right supplier at the right time. You can follow these steps, or set out a fuller accounts payable process guide for your team.

1. Receive the invoice from your supplier.
2. Check it against the purchase order and the goods received, a step known as three-way matching.
3. Approve the invoice for payment.
4. Schedule and make the payment by the due date.
5. Record and reconcile the payment in your books.

Simplify accounts payable with Xero

Staying on top of accounts payable gets easier when your bills, payments and records sit in one place. Xero helps you track invoices, schedule payments and keep clear records of what you owe, so you can pay bills on time and manage cash flow with less guesswork.

With automated bank feeds and invoice matching, Xero helps reduce the manual work in accounts payable, giving you more time to focus on your business. Get one month free and see how Xero helps you stay on top of bills.

FAQs on accounts payable

Here are answers to some frequently asked questions about accounts payable.

What is the difference between accounts payable and accounts receivable?

Accounts payable is money you owe suppliers, while accounts receivable is money your customers owe you. One is a liability, the other is an asset.

Is accounts payable an asset or liability?

Accounts payable is a current liability, because it’s money you owe others. It’s a liability rather than an expense.

Is accounts payable a debit or credit?

Accounts payable is recorded as a credit when the liability is created. It’s debited when you pay the bill.

What is the accounts payable process?

The accounts payable process runs from receiving a supplier invoice to matching, approving, paying and reconciling it. Following these steps helps you pay short-term debts on time.

Related Terms

• accounts receivable
• invoice
• current liabilities

Learn more about accounts payable

• The accounts payable process
• What is accounts receivable?
• Managing cash flow
• Financial statements