In accounting, what is meant by Accounts Payable and how are basic entries related to Accounts Payable recorded?

Introduction / Context:
Accounts Payable is a fundamental term in financial accounting and appears in almost every set of financial statements. It represents the amount a business owes to its suppliers and other creditors for goods and services purchased on credit. Interviewers often ask for a clear definition and the basic journal entries related to Accounts Payable.

Given Data / Assumptions:

• The business purchases goods or services on credit from suppliers.
• Invoices are recorded when received, not only when cash is paid.
• The business later settles these amounts through cash or bank payments.
• No advanced adjustments such as discounts or foreign currency effects are included here.

Concept / Approach:
Accounts Payable is a liability account. When the business receives goods or services but has not yet paid, it recognises a liability to the supplier. The supplier is a creditor of the business. Therefore, on credit purchase, the relevant expense or asset is debited, and Accounts Payable is credited. When the amount is paid later, Accounts Payable is debited to reduce the liability, and Cash or Bank is credited to show the outflow of funds.

Step-by-Step Solution:
Step 1: At the time of credit purchase, recognise that the company has received value but has not paid cash. Step 2: Debit the relevant expense or asset account, such as Purchases or Inventory, to record what has been acquired. Step 3: Credit Accounts Payable to record the liability owed to the supplier. Step 4: At the time of payment, debit Accounts Payable to reduce the liability. Step 5: Credit Cash or Bank to show the payment made to the supplier.

Verification / Alternative Check:
If we look at the Accounts Payable ledger, we see credits when invoices are posted and debits when payments are made. The remaining credit balance at any point represents the total amount still owed to suppliers. This confirms that Accounts Payable is a liability account. The pattern of entries described above is consistent with standard double entry accounting.

Why Other Options Are Wrong:
The option stating that Accounts Payable represents cash in hand is incorrect because cash is an asset, not a liability. The claim that Accounts Payable is another name for Accounts Receivable is also wrong; Accounts Receivable is an asset representing amounts owed by customers. The option suggesting that Accounts Payable is a capital account unrelated to supplier invoices misclassifies the account type and ignores normal trading transactions.

Common Pitfalls:
Learners sometimes confuse the direction of debits and credits for liability accounts. Others mix up Payables and Receivables. Remember that Payables refer to what the business owes, while Receivables refer to what customers owe to the business. Keeping this distinction clear helps prevent posting errors.

Final Answer:
Accounts Payable represents amounts owed to suppliers; on credit purchase we credit Accounts Payable, and on payment we debit Accounts Payable and credit Cash or Bank.