Is Accounts Payable an Expense? Clear Answers For SMBs

Key takeaways

• Recognize that accounts payable is a liability on your balance sheet, while an expense is a cost on your income statement.
• Record expenses only for goods and services already used, and list accounts payable as invoices you still owe.
• Distinguish accrued expenses from accounts payable by checking whether the vendor invoice has arrived yet.
• Track invoices and due dates closely, and use accounts payable software to automate approvals and avoid errors.

TL;DR: accounts payable vs expenses at a glance

No, accounts payable is not an expense. They both involve money spent for business purposes, but they’re separate entries on different financial statements.

• Accounts payable: invoices you owe but haven’t paid yet. Listed on your balance sheet as a current liability.
• Expenses: costs already incurred for goods or services used. Listed on your income statement.

What is 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 to 90 days.

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.

Accrued expenses vs accounts payable

Accrued expenses are costs you’ve used but haven’t been invoiced for yet, so they aren’t accounts payable. Accounts payable covers invoices you’ve already received but haven’t paid. Both are liabilities on your balance sheet.

Accrued expenses include payments for utilities, rent, or wages that are only invoiced at the end of a specified period. This typically happens on a monthly, quarterly, or annual basis. Your phone bill is a good example: you’ve made the calls, but the invoice only arrives at the end of the month.

The key difference is the invoice. If a bill hasn’t arrived yet, it’s an accrued expense, not accounts payable.

How to record accounts payable

Recording accounts payable keeps your books accurate and your vendors paid on time. Here’s how to record an account payable in a few simple steps.

1. Receive and review the vendor invoice.
2. Enter the amount as a credit to your accounts payable account.
3. Record the matching debit to the related expense or asset account.
4. Pay the bill by its due date and clear the 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 automates approvals and flags errors, so you spend less time on data entry and avoid duplicate or late payments.

Automation tools are evolving quickly, and AI in accounts payable can help identify duplicate invoices and speed up approvals. Businesses also benefit from AP and AR automation to manage both payables and receivables in one place.

If you need a simple online tool to manage your accounts payable and send out payments to vendors, tools like Melio can help you stay on top of your bills.

Sign up for Melio today. It’s free and can save you hours of work every week.

Accounts payable and expenses FAQs