Accounts payable

Credit purchases and payments

Types of liabilities

Liabilities are financial obligations or debts that a business owes to external parties.

Current liabilities are debts that a business must repay within a short period, usually within a year.

Long-term liabilities have a longer repayment period and are not considered current liabilities.

Accounts payable

• A business owes money to its creditors or suppliers

• Outstanding invoices or bills that need to be paid in the near future

• Current liabilities

Business line of credit

• Credit accounts with vendors, suppliers, credit card companies, or banks

• Only considered current liabilities if the payment is due within a year

• An agreement between two parties that provides businesses with a predetermined amount of funds they can access as needed

• Revolving credit account, enabling businesses to borrow and repay funds multiple times within a specified limit

• Provide flexibility for managing cash flow fluctuations and meeting short-term financial needs

Commercial loan

• A business loan

• A financial arrangement in which a lender provides funds to a business for a specific purpose

• A form of debt financing that allows businesses to access capital to start, operate, expand, or invest in their operations

• Either a current or a long-term liability, depending on the terms of the loan

Tracking credit purchases

Tracking credit purchases involved recording transactions associated with the acquisition of goods or services on credit, where payment is deferred to a later date or made through an agreed-upon credit arrangement.

Tracking credit purchases involves recording transactions associated with:

• Receiving bills

• Paying out money on bills