{"id":6047,"date":"2021-10-25T00:03:22","date_gmt":"2021-10-24T23:03:22","guid":{"rendered":"https:\/\/www.simtrade.fr\/blog_simtrade\/?p=6047"},"modified":"2021-10-25T00:03:22","modified_gmt":"2021-10-24T23:03:22","slug":"accounts-payable","status":"publish","type":"post","link":"https:\/\/www.simtrade.fr\/blog_simtrade\/accounts-payable\/","title":{"rendered":"Accounts Payable"},"content":{"rendered":"

Accounts Payable<\/h1>\n

\"Shruti<\/a><\/p>\n

In this article,\u00a0Shruti Chand<\/a>\u00a0(ESSEC Business School, Master in Management, 2020-2022) elaborates on the concept of\u00a0accounts payable<\/em>.<\/p>\n

This read will help you get started with understanding accounts payable and its significance.<\/p>\n

What are accounts payable?<\/h2>\n

Accounts Payable appears in the balance sheet of a company when the company purchases goods or services on credit that needs to be paid after a certain period.<\/p>\n

Accounts payable arises when the payment for a purchase of goods or services has not been made upfront but will happen in the future at a given date determined at the time of the purchase by the client (sale by the firm). In this case, goods or services are purchased on credit. They are to to be paid back in the short term.<\/p>\n

Example<\/h2>\n

The services that we consume monthly such as electricity or telephone usually must be paid at the end of the month even though the consumption of the month is done before the said payment. This in turn becomes accounts payable. And our failure to meet the payment at the end of the month could lead to default and hence an extra charge.<\/p>\n

For businesses the account payable could be when for example they buy a product, but the payment is not done instantly. For instance, Company X buys an AC from company Y but agrees to make the payment after a month. This transaction for Company X will be recorded as accounts payable whereas for Company Y it will be recorded as accounts receivable.<\/p>\n

Accounting Treatment<\/h2>\n

\u2018Accounts payable\u2019 falls under Liability in the balance sheet under \u2018Current Liability\u2019. It is in current liability since it is a form of short-term debt. Failure to meet this payment by the company will lead to a default. For double entry of accounting, the debit of the same is recorded in the expense account as a purchase. For goods like raw materials, there is a variation in inventory in the revenues and an increase in the Asset side under \u2018Inventory\u2019.<\/p>\n

The increase or decrease in the Accounts Payable of the prior period is recorded in the Cash Flow statement of the entity.<\/p>\n

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Final Words<\/h2>\n

Accounts payable are crucial to every economy and it differs based on various factors and is taken in control by policy makers whenever needed. As a student curious about Finance, learning about Repo Rate will go a long way in the future to understand better how liquidity and prices in the economy is maintained.<\/p>\n

Relevance to the SimTrade certificate<\/h2>\n

This post deals with\u00a0Accounts Payable and how it’s significance in the books of accounts of the companies you would like to invest in as an investor,<\/p>\n

About theory<\/h3>\n