What is accounts payable?

Published Thursday 23 July 2026

Table of contents

• What is accounts payable?
• Accounts payable vs accounts receivable
• Is accounts payable an asset or liability?
• Is accounts payable a debit or a credit?
• The accounts payable process
• Accounts payable metrics: turnover ratio and days payable outstanding
• Managing accounts payable with Xero
• 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 for goods or services bought on credit, and it sits as a current liability on your balance sheet.
• Accounts payable is what you owe others, while accounts receivable is what others owe you, so it represents money going out and shapes your working capital.
• You credit accounts payable when you record a bill and debit it when you pay, which keeps your accrual accounts accurate.
• A clear accounts payable process and simple controls help you pay on time, avoid duplicate payments, and keep good supplier relationships.

What is accounts payable?

Accounts payable is the money your business owes suppliers for goods or services you've bought on credit but haven't paid for yet. It's the total of your outstanding bills, and it shows up as a current liability on your balance sheet.

The term has a second meaning too. It can also describe the team or function that manages these bills, from checking invoices to scheduling and making payments.

In a larger company, a dedicated accounts payable team handles this work. In a small business, you might manage it yourself or hand it to a bookkeeper. Either way, staying on top of it helps you avoid late fees and keep accurate records.

Here's a quick example. When you buy stock from a supplier on credit, they send you an invoice. That amount becomes part of your accounts payable until you pay it. In the supplier's books, the same invoice is accounts receivable, money they expect to collect from you.

Accounts payable vs accounts receivable

Accounts payable and accounts receivable are two sides of the same transaction. Accounts payable is money going out that you owe suppliers, while accounts receivable is money coming in that customers owe you.

The balance between the two drives your working capital. When you buy office supplies on credit, that unpaid invoice is your accounts payable. When you sell to a customer and send an invoice, that becomes your accounts receivable until they pay.

Is accounts payable an asset or liability?

Accounts payable is a liability because it's money your business owes to others. More precisely, it's a current liability, since you usually settle it within a year.

A few points explain why it lands in this category:

• It's a financial obligation you have a legal duty to pay
• It represents cash that will leave your business
• It's time sensitive, with most supplier terms falling between 30 and 90 days
• It appears under current liabilities on your balance sheet, not under assets

Knowing this classification helps you read your balance sheet and plan cash flow with confidence.

Is accounts payable a debit or a credit?

Accounts payable is credited when you record a bill and debited when you pay it. That's because it's a liability account, so a credit increases the balance and a debit reduces it.

Say a supplier sends you a $500 bill for materials. You credit accounts payable $500 and debit your materials expense $500, which records the amount you owe. When you pay the bill, you debit accounts payable $500 to clear it and credit your bank account $500.

This double entry reflects cash vs accrual accounting, where you record the cost when the bill arrives rather than when the money leaves your account.

The accounts payable process

The accounts payable process is the set of steps you follow from receiving a supplier bill to paying it and reconciling your books. A clear, repeatable workflow keeps payments accurate and on time.

1. Receive the bill from your supplier
2. Check and match it against the purchase order or delivery
3. Approve the bill for payment
4. Record it and schedule the payment for its due date
5. Pay the supplier and reconcile the payment in your accounts

For a fuller walkthrough, read the guide to the accounts payable process.

Accounts payable metrics: turnover ratio and days payable outstanding

Two simple metrics show how quickly you pay suppliers and how you manage cash. You can track both from figures in your accounts.

The accounts payable turnover ratio shows how often you pay off your suppliers over a period. You work it out by dividing your total supplier purchases by your average accounts payable for that period.

Days payable outstanding (DPO) shows the average number of days you take to pay a bill. You calculate it by dividing your average accounts payable by your cost of goods sold, then multiplying by the number of days in the period.

Managing accounts payable with Xero

Managing accounts payable well keeps bills paid on time and cash flow steady. A little automation and a few simple controls go a long way for a small business.

Good habits to build into your process include:

• Approve every bill before you pay it
• Match each bill to a purchase order or delivery to catch errors
• Check for duplicate bills so you don't pay the same one twice
• Schedule payments for their due dates to avoid late fees
• Reconcile payments regularly to keep your records accurate

Xero brings these habits together in one place. You can track bills, schedule payments, and see what you owe and when it's due, with automated bank feeds and invoice matching to cut the manual work.

When it's time to settle up, you can review, approve, and pay bills from the same view, so nothing slips through.

Simplify accounts payable with Xero

Staying on top of accounts payable gets easier when your bills, approvals, and payments live in one place. Xero helps you organise the work, pay suppliers on time, and keep a clear picture of your cash flow.

See how it fits your business and Get one month free.

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 for goods or services you've bought on credit. Accounts receivable is money your customers owe you.

Is accounts payable an asset or liability?

Accounts payable is a current liability on your balance sheet. It represents money you expect to pay within a year.

Is accounts payable a debit or a credit?

You credit accounts payable when you record a bill and debit it when you pay. It's a liability account, so credits increase it and debits reduce it.

What is the difference between accounts payable and accrued expenses?

Accounts payable covers bills you've received from suppliers with a set amount and due date. Accrued expenses are costs you've incurred but not yet been billed for, so you estimate them.

What is days payable outstanding?

Days payable outstanding (DPO) is the average number of days you take to pay a supplier bill. A higher figure means you hold onto cash longer before paying.

Related terms

• Accounts receivable
• Current liabilities
• Cash vs accrual accounting

Learn more about accounts payable

• Accounts payable process guide
• Pay bills
• Working capital