What accounts payable is: procure to pay
Accounts payable is what a company owes its vendors for bills received. Here it is on Northwind's first bill, from purchase order to payment.
On September 3, 2026, $18,000 of drills arrived at Northwind on 30-day terms. No cash moved, and Northwind still owed money from that moment. That obligation is accounts payable: what the company owes its vendors for bills it has received. It is a liability, and on an accrual basis book it is recorded when the goods or the service arrive, not when the money leaves.
$18,000 of stock arrives from a supplier, on 30-day terms.
| Account | Debit | Credit |
|---|---|---|
| 1300Inventory | 18,000.00 | |
| 2000Accounts payable | 18,000.00 | |
| Balanced | 18,000.00 | 18,000.00 |
No cash moved at all, and the entry still has to be made: Northwind now owns goods and owes money for them. This is the entry cash-basis bookkeeping cannot make.
Northwind pays $12,000 against the supplier's bill.
| Account | Debit | Credit |
|---|---|---|
| 2000Accounts payable | 12,000.00 | |
| 1000Cash — operating | 12,000.00 | |
| Balanced | 12,000.00 | 12,000.00 |
Nothing was bought here and nothing was consumed. An obligation was settled: the liability goes down and so does cash. No expense appears, because the expense happened when the goods were sold.
JE-4 and JE-9: the bill, then a payment against it.
2000Accounts payable
| Debit | Credit |
|---|---|
| JE-912,000.00 | JE-418,000.00 |
| Total12,000.00 | Total18,000.00 |
Balance 6,000.00 on the credit side — the difference between the two columns.
By September 30 the account holds $6,000: the $18,000 bill less the $12,000 paid on September 20, 2026. Notice what the payment did not do. No expense appeared, because the drills became cost of revenue when they were sold, not when they were paid for.
Procure to pay, the whole loop
AP is the back half of a cycle accountants call procure to pay. A need becomes a purchase order, the goods become a goods receipt, the vendor's invoice becomes a bill, the bill is matched and given approval, and approved bills are paid together in a payment run. Only two of those steps touch the general ledger: the bill, or the receipt where a company uses GR/IR, and the payment.
- RequestSomeone needs something. No entry.
- Purchase orderPO-1001: a commitment, not a liability. No entry.
- ReceiptThe goods arrive and are counted.
- This lessonBillDr inventory or expense, Cr accounts payable.
- Match and approveOrder, receipt and bill agree; the owner approves.
- PayDr accounts payable, Cr cash.
- ReconcileThe bank, the aging and the ledger agree.
Accounts payable is a control account. The detail behind it, the open bills by vendor, is the AP subledger, and the two must agree at every month end. A bill-pay tool connected to the books is that subledger for most startups.
Wrong
Sep 20 Dr 1300 Inventory 12,000
Cr 1000 Cash 12,000
The other $6,000 owed appears nowhere.Right
Sep 3 Dr 1300 Inventory 18,000
Cr 2000 Accounts payable 18,000
Sep 20 Dr 2000 / Cr 1000 12,000Booking bills only when they are paid is cash basis. The balance sheet then never shows what is owed, and every month's expenses follow the bank instead of the work.
A purchase order is a promise, a bill is a liability, and a payment only settles the liability. The expense was decided when the goods or the service arrived.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- US GAAP
- ASC 405 (opens in a new tab)LiabilitiesFree after registration
- Conceptual framework
- CON 8, Ch. 4, ¶E37 (opens in a new tab)Definition of a liabilityFree to read
- Background reading — not an authority
- Wikipedia, “Accounts payable” (opens in a new tab)Accounts payableFree to read
- Wikipedia, “Purchase-to-pay” (opens in a new tab)Purchase-to-payFree to read
The full map is in US GAAP, and where these rules come from.
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Accounts payableWhat we owe vendors for bills already received
- BillA claim against us
- VendorA party we buy fromConvention
- Purchase orderA commitment to buyConvention
- Goods receiptConfirmation that goods arrived
- Payment runA batch of payments released togetherConvention
- Control accountA GL account whose balance is the total of a subledger — AR, AP, fixed assets — and is posted only from itConvention
- SubledgerThe detail, by customer, vendor or asset, whose total must equal its control account in the GLConvention
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.
See also
- Procure to pay (AP)The payables stack from requisition to reconciliation: requisition → PO → receipt → bill → approval → payment → reconciliation.
- Journal entry for accounts payableWhen an approved vendor bill is entered, debit the expense or asset it bought and credit Accounts payable. When it is paid, debit Accounts payable and credit Cash.
- Journal entry for an inventory purchaseWhen inventory is bought on credit under a perpetual system, debit Inventory and credit Accounts payable. If an early-payment discount is taken, debit Accounts payable for the full bill, credit Cash for what is paid and credit Inventory for the discount.
- Accounts payable vs accounts receivableAccounts payable is what the company owes its suppliers, and it sits with the liabilities. Accounts receivable is what customers owe the company, and it sits with the assets.
- Accounts payable process for startups: intake to paymentHow a bill moves from inbox to paid: intake, coding, approval, scheduling and recording, plus AP aging and who approves what at a 10-person startup.
- BillRegisterAging and approval state.
- BillFormPer-line coding, required evidence, discount ROI surfaced.
- JournalEntryDebit and credit as two columns. No signed-column variant.