Accounts Payable VS Expense

Here we will study about the Question that is asked in the field of Accounting that, “Is Accounts Payable An Expense"?

You may also be interested in “Is Accounts Payable An Asset”?

The answer to this question is very easy and that is “No”, because Accounts Payable is the amount of debt or obligation payable by the business to outsiders (Suppliers, Banks, Financial Institutions, etc) for the goods purchased or services received on account.ads

Accounts Payable VS Expense

Expenses are the costs incurred for the purpose of earning revenue for the business while Current liability is the amount payable at future date. Expenses have no balance and closed to Income Statement or Profit And Loss Account while Accounts Payable / Creditor is Transferred to Balance Sheet untill it is fully paid. When Accounts Payable is Created, A Current Liability is created which is payable by the business. When the amount is repaid to suppliers or banks, then Accounts Payable is Closed with the amount of goods purchased or services received on account.

For Example, if the company purchased goods from the supplier and does not make the payment to the supplier, then it is a Current Liability or Accounts Payable. But, when the company makes the payment after 30 days, then it realizes the liability and now it becomes the expenses as the company actually makes payment for the goods purchased or services rendered on account.

According To Accrual Basis of Accounting, all the expenses are recorded whether the cash is paid or not and all the revenues are recorded whether the cash is received or not. Any Expense that is not paid becomes the Current Liability and any Revenue Not Received becomes the Asset of the company.

So, when expenses remain unpaid it is a Current Liability and when actually paid for Cash, then these are an Expense for the business.

For Example, Internet Services are the expenses for the business but becomes Accounts Payable for the business as these are remained unpaid at the end of Accounting Period, so these are recorded as the Current Liability For the Business. But, when paid then becomes the Expenses for the business.

So, Accounts Payable is the Current Liability and not an Expense in Accounting.