Is Accounts Payable A Current Liabilities?

Accounts payable is considered an account that is currently payable and this makes it a current liability.
AP occupies its position in the position of current liabilities on the balance sheet. Current liabilities are other payable costs, which are due within a year or the operating cycle of the business. Besides AP, other examples of current liabilities are; short-term borrowings, income taxes, other accrued expenses, etc.

What is Accounts Payable?

It relates to money that a business has spent on its purchase of goods from its suppliers and vendors on credit. It means that it may comprise material, supplies, equipment, inventory, and service, among others that a company procures. AP is an account that reflects unpaid bills or amounts of money that have not yet been paid. When a business organization purchases goods or even Accounting Services on credit, the value of the purchases is recorded as an account payable in the organization’s books until the amount is paid. The payment terms can be anything from net 30 days to 45, 60, or even 90 days from the invoice or the goods received.

Reasons Why Accounts Payable Qualifies as a Current Liability:

1. Short-term obligation: Accounts payable is usually a current liability because such liabilities are usually payable within one year. Upon reviewing AP payment terms, they typically fall between 30 and 90 days after the invoice or goods received date. They are thus expected to be paid off within the operating cycle time hence they are usually short term.

2. Settled using current assets: Accounts payable get reduced with the help of current assets such as cash or cash equivalent. This category is normally paid by the cash generated from sales, collection of receivables, etc. They do not need long-term funding sources like the country’s development funds or the European Development Fund.

3. Incurred during operations: Accounts payable are created from current business activities such as ongoing operations and production. It is understood that organizations require acquiring products, plant & machinery, capital goods, stores & materials, power & light, consumables, etc. to meet operational needs. Accounts payable results from such daily business operations.

4. Not accrued over long durations: Accounts payable relating to expensed items are not accumulated over long periods. AP is typically linked with recent purchases that have not yet been paid for. Old obligations are debts that are paid out in the course of the exercising of the obligation. The current obligations are the only obligations that are due or are still pending.

When Accounts Payable May Become Long-Term:

Accounts payable is always considered to be current liability. However, in some circumstances, one or more components of AP can be a part of the current assets that are paid more than 12 months after the date of the balance sheet. Some examples include:

- Accord between the firm and suppliers that leads to increased term lengths and longer payment times
- Huge time gaps result in leading suppliers getting extensions for their due dates.
- Claim-related conflicts arising from quality standards of goods and services
- Financial difficulties that have prevented the company from being able to make payments

In such cases, the AP portion not expected to produce cash inflow within the next year becomes a PLA. The company distinguishes it and presents it in the balance sheet under the non-current liability. However, it is achieved in special situations resulting from the circumstances outlined above. Only, in some exceptional circumstances, accounts payable can be classified as a short-term current liability.