Term: ACCOUNTS PAYABLE

Amounts owing to the company’s creditors in the balance sheet. These appear under current liabilities. These amounts are owed by the company in the short term (normal commercial periods of 30, 60 or 90 days), usually as a result of purchases on credit. Accounts payable, or “creditors” as they are sometimes called, are a source of funding for the company and contribute positively to their overall working capital position. In other words, working capital is calculated by adding the company’s stock to its accounts receivable (or “debtors”) and then subtracting the figure for accounts payable. This shows how much money is tied up in the day-to-day running of the company. Clearly, companies want to minimise their working capital (since most will be paying overdraft interest on it) and this means that they will always try to maximise their accounts payable – unless they incur an interest penalty for doing so.

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