What is accounts payable?

By Book Keeping Pros
Sources checked 15 Oct 2026

Definition

Accounts payable is the money a business owes to its suppliers for goods or services it has received but not yet paid for. Each unpaid supplier bill sits in accounts payable until it is paid, credited or otherwise settled, and the total is shown as a current liability on the balance sheet.

When a supplier's bill arrives, it is recorded as an expense or a purchase and the amount is added to accounts payable. When the bill is paid, the payment clears it. Bookkeeping software can usually list unpaid bills by how long they have been outstanding, in a report often called aged payables.

Keeping accounts payable up to date shows what the business owes and when each amount is due, so it can plan its cash flow and pay suppliers on time. Before a bill is paid, checking it against what was ordered and what actually arrived catches wrong prices, short deliveries and charges for goods that did not arrive.

Accounts payable only appears in the books when bills are entered before they are paid. A business that records costs only when it pays them, which is cash accounting in the bookkeeping sense, carries no accounts payable balance, so its reports can look healthy while unpaid bills wait in the inbox. When to pay is also a choice: paying on the due date rather than the day a bill lands keeps cash in the business longer, while paying after the due date can strain the relationship with a supplier.

In Australia

business.gov.au lists end-of-year records, including a list of creditors (the people and businesses you owe money to), among the records a business needs to keep. The financial year in Australia runs from 1 July to 30 June, so an accounts payable list at 30 June gives you that list for the year.

The ATO's record-keeping rules say most business records must be kept for 5 years, generally from when they were prepared or obtained, or from when the transactions they relate to were completed, whichever is later. That includes the supplier bills behind accounts payable.

In the business.gov.au glossary, accounts payable is the record of short-term amounts a business has to pay, under 12 months old, with supplier invoices and utility bills among its examples. The same glossary describes buying on credit as taking goods or services now under an agreement to pay later, such as through a supplier account. The ATO adds that accurate and complete records let a business keep track of the money it owes and the money owed to it, and watch its cash flow so that it can pay on time.

Worked example

Illustrative example: unpaid supplier bills at 30 June
Supplier bill	Due date	Amount (AUD)
Office supplies	14 Jul 2026	450.00
Cleaning service	21 Jul 2026	320.00
Equipment hire	31 Jul 2026	1,180.00
Total accounts payable		1,950.00

Illustrative example only: these rows show the method and are not sourced data.

Common mistakes

Entering the same supplier bill twice, once from an emailed copy and once from a paper copy.
Paying a bill without matching the payment to the bill already entered, so the bill still shows as unpaid.
Changing a supplier's bank details because an email asked for it, without confirming the change by phone on a number you already hold.
Entering bills under the date they were keyed in rather than the date on the bill, which puts costs in the wrong month.
Holding bills back until they are due instead of entering them on arrival, so the books understate what is owed in the meantime.

Common questions

Is accounts payable an expense?

No. Accounts payable is a liability: the amount still owed for bills the business has received. The expense is the cost itself, shown on the profit and loss statement for the period in which the goods or services were used. In accrual books, entering a supplier bill for a cost such as cleaning records the expense and the amount owed together. Paying that bill later reduces accounts payable and the bank balance without adding a second expense.

What is the difference between accounts payable and accrued expenses?

Accounts payable covers bills that have actually arrived from suppliers, each with an amount and a due date. Accrued expenses are costs the business has already run up but has not yet been billed for, such as electricity used in the last weeks of a month. They are usually estimated at the end of a period so the reports include them, and reversed once the real bill is entered. Both are liabilities, and how to handle accruals is worth agreeing with your accountant.

How do you calculate accounts payable days?

One common way divides the accounts payable balance by the purchases made on credit over a period, often a quarter or a year, then multiplies by the number of days in that period. The figure estimates, on average, how many days pass before suppliers are paid. Treat it as a pattern to check rather than proof of anything: set it against the payment terms your suppliers offer and against your own earlier figures.

Is accounts payable a debit or a credit?

Accounts payable normally carries a credit balance, because it is a liability. Entering a supplier bill credits accounts payable, and paying that bill debits it, bringing the balance back down. If one supplier's balance turns into a debit, the business may have paid before the bill was entered, paid more than it owed, paid the same bill twice or received a credit note after the bill was settled, so the record is worth checking against that supplier's statement.

Related terms

Related service

Accounts payable and receivable

Bills and invoices tracked, with you approving every payment.

More about accounts payable and receivable

Sources

Record keeping
business.gov.au, Australian Government. Current at 15 October 2026, released 7 November 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
Overview of record-keeping rules for business
Australian Taxation Office. Current at 18 June 2026 (QC60718), released 18 June 2026. Checked 15 October 2026.
© Australian Taxation Office for the Commonwealth of Australia Licence: ATO website copyright notice (copy, adapt and distribute, without implying ATO endorsement).