Accounts payable and accrued liabilities

Accounts payable (trade payables) are amounts owed to suppliers for goods and services already received and invoiced. The liability arises when the business receives the goods or service — the moment it has an obligation to pay — not when the invoice is paid. A purchase on credit is therefore recorded when the goods arrive or the invoice is approved: debit the asset or expense, credit Accounts payable. Paying the supplier later simply settles the liability: debit Accounts payable, credit Cash. Goods returned to a supplier reverse part of the purchase (the supplier usually issues a credit note).

Accrued liabilities (accrued expenses) are obligations for goods or services received where the invoice hasn't arrived yet at the reporting date: electricity used in December but billed in January, the audit of this year's accounts, wages earned in the last days of the month, or goods received on 30 December with the invoice to follow. The amount is estimated from contracts, meter readings, delivery notes or past bills, so it is a little less certain than a payable — but far more certain than a provision. IAS 37.11 makes exactly this distinction, and accruals are often presented together with trade payables as "trade and other payables".

A purchase order is not a liability: until the supplier delivers, neither side has performed. Recording orders as payables is a common cut-off error that overstates liabilities and inventory or expenses.

Supplier statement reconciliation. Suppliers send monthly statements of what they think you owe. Differences with your payables ledger are usually: - timing items — a payment you sent that the supplier hasn't received yet (no entry in your books); - items you haven't recorded — an invoice or credit note on the statement that never reached your ledger (these need entries, once you confirm they are valid); - errors on either side. Both sides should reach the same agreed balance. The reconciliation is one of the strongest controls over the completeness of liabilities, which auditors care about most because understatement flatters the balance sheet.

Supplier finance (reverse factoring). Some buyers arrange for a bank to pay their suppliers early and then repay the bank later. The buyer must judge whether the amount is still a trade payable or has become borrowing — if the terms are extended well beyond normal trade credit, it looks like debt. Since the IASB's Supplier Finance Arrangements amendments to IAS 7 and IFRS 7 (issued May 2023, effective for annual periods beginning on or after 1 January 2024), entities disclose the terms, the payables involved and the range of payment due dates so users can see the liquidity effect. US GAAP has similar disclosure requirements (ASU 2022-04).