An expense refers to a cost that has already been incurred for business operations. On the other hand, accounts payable (AP) refers to the owed money to suppliers/vendors for goods and services purchased on credit. Therefore, Accounts payable is not an expense.
In a company’s balance sheet, accounts payable are recorded in the liabilities section as a current liability. However, when companies pay for invoices, it is recorded as an expense in their income statement.
Let us say, ABC Enterprises purchases goods on credit worth Rs. 1 lakh from a vendor, the company’s Accounts Payable balance will increase by this amount as it is a purchase on credit and the amount is owed to the vendor. The enterprise has not yet incurred an expense. It will be considered an expense once the company pays off the amount and reduces the Accounts payable balance by Rs.1 lakh.
Thus, accounts payable is a liability for a business. It is necessary to maintain AP function efficiently for favorable cash flow and effective budgeting with a clear insight into payables. An experienced business process outsourcing (BPO) partner can help companies to boost the efficiency and productivity of their AP function. They can offer high accuracy in invoice processing and data entry for better efficiency.