Which statement accurately describes accounts payable?

Which statement accurately describes accounts payable?

• A. Amounts owed by customers
• B. Amounts owed to suppliers
• C. Revenue recognized from sales
• D. Equity contributions

Answer: (B)

Accounts payable is a liability that records what a business owes to suppliers for goods or services received on credit. It appears on the balance sheet as an obligation the company needs to pay in the near term. When a purchase is made on credit, you increase (credit) accounts payable and increase (debit) the related expense or asset. When the bill is paid, you decrease (debit) accounts payable and decrease (credit) cash. This makes sense because the company has an outstanding obligation to suppliers until it settles the payment. The other ideas describe different things: amounts owed by customers are accounts receivable, not payable; revenue from sales is income earned by the business, not a liability; and equity contributions are owner’s equity, not something the company owes to someone else. So the accurate description is that accounts payable are amounts owed to suppliers.

Accounts payable is a liability that records what a business owes to suppliers for goods or services received on credit. It appears on the balance sheet as an obligation the company needs to pay in the near term. When a purchase is made on credit, you increase (credit) accounts payable and increase (debit) the related expense or asset. When the bill is paid, you decrease (debit) accounts payable and decrease (credit) cash. This makes sense because the company has an outstanding obligation to suppliers until it settles the payment.

The other ideas describe different things: amounts owed by customers are accounts receivable, not payable; revenue from sales is income earned by the business, not a liability; and equity contributions are owner’s equity, not something the company owes to someone else. So the accurate description is that accounts payable are amounts owed to suppliers.