Does Accounts Payable Go On The Income Statement?

Almost all small business owners, in my opinion, have doubts regarding some of the most fundamental parts of accounting and where particular accounts show on financial statements. Among the many queries people have are ones about whether account payable shows up on the income statement.

The quick response to the query, "Is accounts payable an income statement account?" That is not the response. On the balance sheet, you will find a liability account called accounts payable. The income statement does, however, show other connected items including Interest expense. Let us break this out into pieces to help to clarify things.

Definitions of accounts payable

A sum of money, accounts payable, has also been borrowed by a company from vendors, contractors, and other creditors to purchase goods or services. This is a short-term liability, meaning that the companies may readily get money to finance operations and purchases.

An obligation of a company is accounts payable, which is the payment to a supplier for products or services acquired later than their delivery. This amounts to what the company has agreed upon. Effectively a short-term receivable, this liability needs to be shown on the balance sheet of the business. Usually, accounts payable are paid in thirty days, sixty days, or ninety days.

Once more, the accounts payable show on the balance sheet under the line item of current liabilities and show up under the operational activities part of the company's cash flow statement.

On the side of the balance sheet, accounts payable show as current liability. It cannot be included on the income statement as an operational expense either since it is not categorized as such. Among the financial statements, the income statement offers details on the expenses incurred during a specified period and the revenues attained. Paid later, accounts payable are an accrued sum owed to the supplier of goods or services.

On the other hand, the related cost would show on the income statement for the same period as those payables are due for payment and paid. Let us suppose, for example, that a company has an accounts payable balance for purchased office supplies of $5,000; when that liability is paid later, the income statement for that period will show an office supply expense of $5,000.

Regarding interest expense, what is it?

Should a company pay interest on the amounts of the accounts payable, the interest accrued on the accounts will show up on the income statement.

For every $100 invoice, a supplier might specify terms whereby they will be charging $2, which is charged monthly for every invoice that is not settled after 60 days. For a company with a $20,000 accounts payable balance, for example, the interest charged for a period of nonpayment will show on the income statement as $400 for that month.

To show the interest owed, even more accounts due would also show on the balance sheet. Should any interest be paid, such a payment would subsequently lower the liability.

Key Learnings:

Reported as current liabilities on the balance sheet, accounts payable are short-term credit balances not yet paid but projected to be cleared within the next twelve months.

The income statement shows the revenues and expenses incurred over a period; so, there is not stated immediately there. However, paying accounts payable causes the relevant expense to show up on the income statement.

Assuming it was paid later than agreed, interest on account payable would show on the income statement as interest expenditure.

Stated differently, although the accounts payable account is a balance sheet account, occasionally the linked expenses will show up on the income statement. Knowing where these important accounts are found across the financial statements is equally important for all managers of businesses.