Are accounts payable the same as expenses?
While they both refer to money spent by a company for business purposes, accounts payable and expenses are separate entries in your financial statements.
Just because you own a small business doesn’t mean you’re an expert bookkeeper. It does mean, however, that some accounting elements are inevitably a part of your day-to-day. So, if you find many financial terms—say, accounts payable (AP) and expenses—confusing and have a hard time distinguishing between them, know that you’re not alone. Even financial professionals sometimes find it confusing. If you’re wondering what is accounts payable, it refers to open bills or invoices from vendors and suppliers for goods and services already provided.
We’ve already covered the difference between assets and liabilities, ACH bank transfers and wires, as well as B2B and B2C. Now, we’re ready to dive in and clear up any mixup about whether accounts payable are the same as expenses.
TL;DR: AP and expenses are two different things
While they both refer to money that is spent by a company for business purposes, accounts payable and expenses are separate entries in different financial statements.
Accounts payable are invoices that are due soon and are listed on your balance sheet as a type of liability. Expenses, on the other hand, are payments that were already made and are listed on your income statement.
What’s accounts payable?
Open bills or invoices from vendors and suppliers for goods and services already provided are listed as accounts payable. This means they’re a type of short-term debt owed by the business to its vendors. Accounts payable are typically billed with net terms and payment is due within 30-90 days.
Where to list accounts payable in your financial statements
Accounts payable are a form of short-term debt as they are invoices for items already received by the business but not yet paid for. As such, AP goes on the company’s balance sheet under current liabilities.
Be sure not to confuse accounts payable with accounts receivable (AR), which are listed as assets on the balance sheet. Understanding accounts payable vs accounts receivable helps you keep both sides of your books organized.
What are expenses in accounting?
In our personal lives, we typically use the word expenses to mark anything that costs us money. But, in accounting, everything has to be a little bit more complicated.
As a financial term, expenses only refer to payments already made for goods and services that have been provided to the business. In other words, they only refer to completed transactions, where both parties have fulfilled their obligations.
Where to list expenses in your financial statements
Expenses are listed on your income statement, which details expenditure vs. revenue. This document includes every payment coming in or out of the business.
Alongside the balance sheet, a financial statement offers a clear view of a business’s monetary situation and net worth. It is required by auditors as well as potential partners, lenders, and investors as part of a standard due diligence process.
What about accrued expenses?
Accrued expenses are what we meant when we said nothing is ever really simple in accounting. Accrued expenses actually refer to goods or services that have already been consumed by the business but have not been billed or invoiced yet.
These include, for example, payments for utilities, rent, or wages that are only invoiced at the end of a specified period, agreed upon by both parties. This typically happens on a month-by-month, quarterly, or annual basis. So, your phone bill is an accrued expense, because it refers to calls you’ve already made but will only be invoiced at the end of the month.
While they’re called expenses, since they refer to future bills, accrued expenses are a form of debt and are listed as liabilities on your balance sheet. However, because they have not been invoiced yet, they are not accounts payable.
Bookkeeping made simple
Now that you know the difference between expenses and AP, keeping your books in order should be a little bit easier. For small business accounts payable, it helps to stay organized by tracking invoices and payment due dates carefully. Accounts payable software small business owners use can automate approvals, flag errors, and save valuable time.
Automation tools are evolving quickly, and AI in accounts payable can help identify duplicate invoices and speed up approvals. Businesses also benefit from AP/AR automation to manage both payables and receivables in one place.
If you’re still wondering what are online payments and how they tie into AP management, they’re simply digital transfers that let you pay vendors faster and keep better records. Some small businesses even choose to outsource accounts payable services to third-party providers to save time and ensure accuracy.
If you need a simple online tool to manage your accounts payable and send out payments to vendors, tools like Melio can help tackle common accounts payable problems and solutions.
Sign up for Melio today. It’s free and can save you hours of work every week.
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.
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