Overview: What are accounts payable services?

Accounts payable refers to what you owe for items purchased on credit. Any time you purchase goods or services, the amount you owe for those goods and services is added to your accounts payable balance.

Because all of these items or services were purchased on credit, with the amount due and payable within a specific timeframe, a late fee or a penalty can be assessed if the amount is not paid within the agreed timeframe.

Accounts payable is a liability account, so if you’re using double-entry accounting, any increase to this account would be posted as a credit, with a corresponding debit made to an expense account.

Accounts payable vs. accounts receivable: What’s the difference?

Both accounts payable and accounts receivable are vital parts of the accounting process. Accounts payable, as explained above, are what is owed to suppliers or service providers for products received or services rendered. Accounts payable are considered liabilities, since it is money that is owed.

On the other hand, accounts receivable (A/R) is money owed to you for goods or services you provided to your customers on credit. Accounts receivable balances are considered an asset, as that number indicates how much money is owed to you by your customers. Knowing this number comes into play when digging into deeper business insights by calculating your accounts receivable turnover.

How the accounts payable process works

The proper accounts payable procedure begins with a good chart of accounts, which enables you to post your expenses to the correct account. The process is complete when you issue a check or electronic payment to the vendor for the amount due on or before the stated due date.

If you’re used to managing your own personal bills, you should have no problem transitioning to the accounts payable process. However, there are a few things you need to do in order to prepare and process accounts payable properly.

Step 1: Create your chart of account

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Creating a chart of accounts that works with your business is one of the most important things you’ll need to do before you begin to process accounts payable. Your chart of accounts is where all of your accounting transactions reside, and accounts payable is no exception.