Why is Accounts Payable Negative in The Cash Flow Statement when Accounts Payable Increased Year-over-Year?
Accounts payable is a liability that expresses the amount a business owes to vendors and suppliers for goods and services received but not paid.
- When a company purchases goods or services on credit, it increases Accounts payable. When the AP debt is paid off, it decreases the pending account.
Increased Accounts payable year-over-year means the company’s liability is increasing.
However, if the company pays more than it accrued, the Accounts payable balance will be negative in the cash flow statement. The negative balance means the company has paid over the amount accrued.
Therefore, a negative Accounts payable balance does not necessarily mean the payables balance has been reduced. Rather it indicates that the business paid off more than accrued.
Such issues of overpayment indicate inefficient AP function in a company.
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