Accounts Payable also Known as “Trade payable” is a liability to a creditor usually for purchases of goods and services.
When a company orders and receives goods or services in advance of paying for them, we say that the company is purchasing the goods on account or on credit. The vendor of the goods on credit is also referred to as a creditor. If the company receiving the goods does not sign a promissory note, the vendor’s bill or invoice will be recorded by the company in its liability account Accounts Payable.
As is expected for a liability account, Accounts Payable will normally have a credit balance. Hence, when a vendor invoice is recorded, Accounts Payable will be credited and another account must be debited as required by double-entry accounting. When an account payable is paid, Accounts Payable will be debited and Cash will be credited. Therefore, the credit balance in Accounts Payable should be equal to the amount of vendor invoices that have been recorded but have not yet been paid.