Accounts Payable

Accounts Payable is money owed by a business to a supplier. The Accounts Payable is shown on your Balance Sheet as a Liability.

In this video…

Hi, Greg here for On Track Business Management. In this video, we’ll talk about accounts payable.

Accounts payable is money owed by a business to its suppliers or other vendors, and shown on its balance sheet as a liability. Using accounts payable is part of an accrual account. We’ll post the expense in job costs when we receive the payable invoice. To manage our cash flow, we try to bill our client and receive payment before we need to pay the payable invoice.

An important goal would always be to take advantage of early-pay discounts. A discount of 2% compounds to about 36% a year, not to 24%, as you might think. Where else are you going to earn that kind of return?

When paying individuals or companies that you’re required to send a 1099 at the end of the year, have them fill out and sign a W-9 before making the payment. The W-9 is available from the IRS website, or if it’s more convenient, you can download it from the On Track website.

In the next video, we’ll learn about using ratios in managing your business.

Next Video: Current Ratios