# 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.

Source: https://lopifi.com/learn/what-is-accounts-payable
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What is accounts payable, and how does the procure-to-pay process work?** 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](https://lopifi.com/md/glossary/accounts-payable): what the company owes its [vendors](https://lopifi.com/md/glossary/vendor) for [bills](https://lopifi.com/md/glossary/bill) it has received. It is a [Liability](https://lopifi.com/md/glossary/liability), and on an [Accrual basis](https://lopifi.com/md/glossary/accrual-basis) book it is recorded when the goods or the service arrive, not when the money leaves.

*[Journal entries: JE-4, JE-9]*

JE-4 and JE-9: the bill, then a payment against it.

*[Figure: double entry]*

JE-4 on the balance. The debit is the drills, an asset; the credit is what Northwind now owes.

*[T-account: 2000]*

Accounts payable through September.

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.

> “A liability is a present obligation of an entity to transfer an economic benefit.”

© Financial Accounting Foundation. All rights reserved.

— [CON 8, Ch. 4, ¶E37](https://www.fasb.org/concepts-statements), Definition of a liability

## 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](https://lopifi.com/md/glossary/purchase-order), the goods become a [goods receipt](https://lopifi.com/md/glossary/goods-receipt), the vendor's invoice becomes a bill, the bill is matched and given [Approval](https://lopifi.com/md/glossary/approval), and approved bills are paid together in a [payment run](https://lopifi.com/md/glossary/payment-run). Only two of those steps touch the [general ledger](https://lopifi.com/md/glossary/general-ledger): the bill, or the receipt where a company uses [GR/IR](https://lopifi.com/md/glossary/gr-ir), and the payment.

Request (Someone needs something. No entry.) → Purchase order (PO-1001: a commitment, not a liability. No entry.) → Receipt (The goods arrive and are counted.) → Bill (Dr inventory or expense, Cr accounts payable.) → Match and approve (Order, receipt and bill agree; the owner approves.) → Pay (Dr accounts payable, Cr cash.) → Reconcile (The bank, the aging and the ledger agree.)

Procure to pay. Northwind's September sits on the bill.

| Step | Ledger entry | Northwind, September |
| --- | --- | --- |
| Purchase order | None: a commitment | PO-1001 for 360 drills |
| Goods receipt | None, unless GR/IR is used | 360 drills counted in on September 3, 2026 |
| Bill | Dr 1300 Inventory · Cr 2000 Accounts payable | JE-4, $18,000 |
| Payment | Dr 2000 Accounts payable · Cr 1000 Cash | JE-9, $12,000 |
| Open at month end | The balance of 2000 | $6,000 |

Which steps move the books, and where Northwind's September stands on each.

Accounts payable is a [control account](https://lopifi.com/md/glossary/control-account). The detail behind it, the open bills by vendor, is the AP [Subledger](https://lopifi.com/md/glossary/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  12,000

Booking 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.

**Use case — AP without purchase orders.** A ten-person software company has no inventory and no purchase orders. Its AP is the law firm, the agency, the cloud bill and the rent. The loop is the same, just shorter: the bill arrives in one inbox, the budget owner approves it against the contract, and the weekly payment run pays everything due before the next one. Purchase orders earn their keep once someone buys physical goods or several people spend against budgets.

> **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

- [CON 8, Ch. 4, ¶E37](https://www.fasb.org/concepts-statements) — Definition of a liability (concepts)
- [ASC 405](https://asc.fasb.org/405/tableOfContent) — Liabilities (codification)
- [Wikipedia, “Accounts payable”](https://en.wikipedia.org/wiki/Accounts_payable) — Accounts payable (reference)
- [Wikipedia, “Purchase-to-pay”](https://en.wikipedia.org/wiki/Purchase-to-pay) — Purchase-to-pay (reference)

## Read further

- https://lopifi.com/md/journal-entries/accounts-payable
- https://lopifi.com/md/journal-entries/inventory-purchase
- https://lopifi.com/md/differences/accounts-payable-vs-accounts-receivable
- https://lopifi.com/md/startups/accounts-payable-process-for-startups
- https://lopifi.com/md/accounting/accounts-payable
- https://lopifi.com/md/docs/domain/06-procure-to-pay

- **Track:** [Accounts payable](https://lopifi.com/md/learn/ap)
- **Lesson:** Lesson 1 of 8 — 9 min
- **Terms taught:** [Accounts payable](https://lopifi.com/md/glossary/accounts-payable), [Bill](https://lopifi.com/md/glossary/bill), [Vendor](https://lopifi.com/md/glossary/vendor), [Purchase order](https://lopifi.com/md/glossary/purchase-order), [Goods receipt](https://lopifi.com/md/glossary/goods-receipt), [Payment run](https://lopifi.com/md/glossary/payment-run), [Control account](https://lopifi.com/md/glossary/control-account), [Subledger](https://lopifi.com/md/glossary/subledger)
- **Previous:** [Payroll providers, PEOs and paying founders, Payroll · Lesson 8](https://lopifi.com/md/learn/payroll-provider-vs-peo)
- **Next:** [Vendor onboarding: W-9, W-8BEN and TIN matching, AP · Lesson 2](https://lopifi.com/md/learn/vendor-onboarding-w-9-and-tin-matching)
- **The course:** https://lopifi.com/md/learn