Accounts payable occurred when a company procured some goods or raw materials from a seller on credit. So, on credit means the company opts for late payment within a stated duration.
When a company purchases products on credit, the accountant makes the entry of the same amount as a credit on accounts payable ledger.
And here the seller has to keep these sales under accounts receivable ledger in the balance sheet.
Not only companies but people also purchase services & goods on credit. For example, we are using cable services, water, house, electricity etc. and paying the bill on next month.
Let’s take an example:
A shopkeeper purchased products from a regular wholesaler and he paid half of the amount and other half payment in credit.
So, the rest amount will put as accounts payable in the balance sheet.
Accounts payable & accounts receivable are different. When a supplier owes money to a company, then its called accounts receivable.