Accounts Payable records amounts owed to suppliers for goods or services received on ordinary credit terms. Receiving supplies on credit can increase both Supplies and Accounts Payable. Paying later reduces Accounts Payable and Cash; it does not record the purchase again.
Explain the balance change
Beginning Accounts Payable + credit purchases - supplier payments = ending Accounts Payable, assuming no returns, discounts, or other adjustments.
Northstar begins with $9,000 of trade payables and ends with $10,000. Assume all changes concern ordinary operating inventory purchases and payments. There are no equipment purchases, financing arrangements, or noncash changes.
The $10,000 - $9,000 = $1,000 increase means payments were $1,000 less than the credit purchases added to the account. Under these assumptions, that increase is added in the indirect operating cash-flow reconciliation. It is not a financing cash receipt.
Check what caused a payable balance to change before interpreting it. Higher purchases and delayed payments can both increase it, but they describe different business conditions.
Source boundary
ASC 210-10-45-5 requires a current-liability total on a classified balance sheet. This page stipulates an ordinary trade payable due in customary terms. The paragraph does not decide recognition, measurement, supplier-finance disclosure, or cash-flow classification for every payable arrangement.
Put the concept to work
Understand this concept
- Explain Accounts Payable as a supplier obligation created by receipt on credit, distinct from expense, borrowing proceeds, and the later Cash payment.
Analyze this concept
- Analyze a basic opening-to-ending Accounts Payable rollforward and explain how a net increase can make supplier Cash payments lower than recognized purchases or costs in a bounded period.
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Build on these ideas
- Accounts payable — Understand
To analyze this concept: Required. The rollforward must preserve obligation creation, settlement, and ending claims.
- Accrual-basis accounting — Analyze
To analyze this concept: Required. Cost recognition or asset receipt and payment can occur on different dates.
- Accrued expense — Understand
To understand this concept: Helpful. Both concepts separate an operating cost or receipt from later settlement, though their documentation and timing can differ.
Show 3 more prerequisites
- General ledger — Apply
To analyze this concept: Required. Opening balance and gross credits and debits explain the account movement.
- Inventory — Understand
To understand this concept: Helpful. A credit purchase can create Inventory and Accounts Payable without an immediate Cash payment.
- Liability — Understand
To understand this concept: Required. The payable is a present supplier claim rather than revenue, equity, or Cash.
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Related concepts
Show 7 more related concepts
Use this idea next
- Accounts payable turnover — Understand
Required level here: analyze. Required. The payable rollforward separates credit purchases from supplier payments and ending obligations.
- Accounts payable — Analyze
Required level here: understand. Required. The rollforward must preserve obligation creation, settlement, and ending claims.
- Changes in operating assets and liabilities — Understand
Required level here: analyze. Required. The payable rollforward connects credit purchases or costs with supplier payments and the ending obligation.
Show 3 more next steps
- Credit purchases — Analyze
Required level here: analyze. Required. The payable rollforward distinguishes obligation creation from cash settlement.
- Credit purchases — Understand
Required level here: understand. Required. The purchases create the supplier obligation used in the analytical rollforward.
- Inventory — Analyze
Required level here: understand. Required. Inventory acquired on credit can increase both Inventory and a supplier obligation without an immediate payment.