Money owed by a business to suppliers or vendors for goods or services received but not yet paid for. Classified as a current liability on the balance sheet.
Accounts Payable is the flip side of Accounts Receivable — from your perspective as the buyer, you have received goods or services and have an obligation to pay. AP represents short-term debt to your suppliers and appears as a current liability on the balance sheet. Effective AP management involves balancing supplier relationships (paying on time to maintain good terms) with cash flow optimization (not paying too early if you can reinvest the cash).
For Philippine businesses, AP must be matched against the corresponding supplier invoices (Official Receipts or Sales Invoices). During a BIR audit, auditors often cross-check declared purchase expenses against AP records to verify that claimed deductions are supported by actual obligations.
In practice: Lakad Footwear in Marikina orders ₱300,000 in raw materials from a leather supplier on 45-day terms. Upon delivery, Lakad receives the supplier's Sales Invoice and records: Debit Raw Materials Inventory ₱300,000 | Credit Accounts Payable ₱300,000. When payment is made 45 days later: Debit Accounts Payable ₱300,000 | Credit Cash ₱300,000. The supplier issues a Collection Receipt upon payment.
Why it matters: Failing to record AP accurately — booking expenses only when cash is paid rather than when goods are received — understates your liabilities and overstates your cash position. This "cash basis" approach may feel simpler, but it gives you a false picture of your financial health. A business that appears to have ₱500,000 in cash but has ₱800,000 in unrecorded AP obligations is actually in a deficit position.
Maintaining an accurate AP aging report helps you plan cash outflows — knowing exactly what is due in the next 30, 60, and 90 days prevents payment defaults and preserves supplier relationships.