In a business, the purchase is a very important activity because without it the business is unable to carry out revenue-related transactions, for example sales. When purchases are made, the business has two options, one is to pay immediately which is also known as cash purchase and the other is to pay after some time which is also known as credit purchase.
When purchases are made in cash then the transaction ends there but when it is made on credit then the transaction continues further because in this case the payment is not made at the same time and until the payment is made, it is known as payable, and it is shown in the balance sheet.
Payable is the opposite of receivable because what is receivable for someone is payable to him and both have their own characteristics for example receivable is an asset for the business while payable is a liability for the business. In payable the business has to pay the due amount within a short period of time and in receivable the business receives the due amount from other within a short period of time, usually this time is one year or less.
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What is Payable?
Payable is an accounting term/concept that represents the amount payable by a business to an outsider on account of expense. In simple words, when a business purchases a product on credit, the person from whom it purchases becomes payable to the business. It is also known as account payable, and it is a liability for the business, so it is shown under current liability on the liability side in the balance sheet.
It is shown under current liabilities because the business has to pay the dues within a year, or it is assumed that the business will pay its dues within a shorter period.
A business is obliged (payable) to pay someone until it pays for the product purchase on credit, as soon as it pays, it is no longer payable to someone and is also removed from the balance sheet as it is no longer a liability for the business. Note: If a person is payable to the business, the business becomes receivable to that person or vice versa.
Features of Payable
Following are the features of payable:
1. Accounting Terms:
Payable is an accounting term used to indicate that the business has an obligation to pay someone due to an expense. In simple terms, payable represents the business’s liability to someone. Payable usually includes creditors from whom the business has purchased products on credit.
2. On Account of Expense:
In a business, payable arise due to expense as the purchase of a product is an expense for the business, and without the expense it does not arise. Note: It includes only credit expense because in credit expense the business has received the product but has not made the payment at the same time.
3. Liability:
Payable is a liability for the business because in this case the business has already received the product but has not paid. Once the business pays its pending payment it is no longer a liability for the business. Note: In liability, it is a current liability because the business has to pay its pending payment or is expected to do so within a year or less.
4. Shown in the Balance Sheet:
Payable is shown on the liability side of the balance sheet under current liability as it is a liability for the business and until it is paid, it is shown on the balance sheet. Note: Once the balance is paid it is removed from the balance sheet as it is no longer a liability for the business.
5. Opposite of Receivable:
Payable is just opposite to receivables because in receivable the business is entitled to receive payment from the party and in payable the business is liable to make payment to the party but both are shown on the balance sheet. In simple words what is receivable for someone is payable to him or vice versa. For example, A sold goods to B, in this case, A is payable to B and B is receivable to A.
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QNA/FAQ
Q1. What is payable?
Ans: Payable is an accounting term/concept that represents the amount payable by a business to an outsider on account of expense.
Q2. Does the expense cause the payable to arise?
Ans: Yes, payable arise because of expense, but only credit expense.
Q3. Is payable a liability for the business?
Ans: Yes, payables is a liability for the business.
Q4. Is payable shown on the balance sheet?
Ans: Yes, the payable is shown on the balance sheet.
Q5. Payable is a current liability, is it true?
Ans: Yes, it is true that payable is a current liability.
Q6. Write the features of payable.
Ans: Following are the features of payable:
1. It is an accounting term/concept.
2. It arises on account of expense.
3. It refers to credit purchases in the business.
4. It represents the amount due.
5. It is also known as account payable/creditor.
6. It is a liability of the business.
7. It is shown on the balance sheet.
8. It is a current liability of the business.
9. It is the opposite of receivable.
