What Are Accrued Trade Payables?

"Accrued trade payables" is not a legitimate accounting term, but is a combination of two accounting definitions: accrued liabilities and trade payables. Both accrued liabilities and trade payables are liabilities (debts) that must be accounted for on your balance sheet and monitored by your accounts payable department. The difference between the two is that trade payables are amounts owed for goods and services which your organization purchased while doing normal business. Accrued liabilities are debts owed for goods and services purchased; they are amounts owed that occur outside the normal purchase/payment process.

Trade payables, often called accounts payable, are open accounts that do not bear interest. You may carry balances for accounts payable for standard business operating items like raw materials, advertising or legal services. Most trade payable accounts are due for payment within a set period of time. Thirty days is a common due date for payables, but you can occasionally negotiate other terms with the supplier ahead of time.

Accrued liabilities (sometimes called accrued expenses) are expenses your business incurred, but has not yet paid. According to Investopedia, a common example of an accrued liability is payroll taxes. Employers are responsible for paying federal and state payroll taxes, unemployment taxes and social security. Employers set aside this money all year long until these taxes and payments are due. Until the actual transaction is made, where employer pays payroll taxes, the funds are held in a bank account and considered to be an accrued liability. Note that accrued liabilities are not the same as past due payments.

It is extremely important that accounts payable personnel, bookkeepers and accountants in your organization understand the difference between accrued liabilities and trade payables. The American Institute of Professional Bookeepers states that failure to record these entries correctly can result in three serious accounting problems. The first problem is understated liabilities on the balance sheet. In other words, the company can owe more money to suppliers or the IRS than it is aware of. The next problem is understated expenses.Basically, the company will not know true operating expenses, and therefore cannot budget for the future. Lastly, errors on the balance sheet can lead to an overstatement of net income and net assets. In other words, the company believes it has more cash than it actually holds.

If you recently hired a new accounts payable department employee, you should review some common accounts payable and accrued liabilities issues. Commission paid to sales people is an excellent example. If a sales rep earns a 20 percent commission, and makes a $1,000 sale, $200 of that is due to the sales person. Additionally, payroll taxes and Social Security payments must be made to the government. The amount varies by your location and the employee's specific status. But your payables personnel should understand that a $1,000 sale, less $200 commission (an accrued liability), less $75 socked away for future taxes (an accrued liability), becomes a net increase of $775. Of that $775, some money may be owed to suppliers or wholesalers (your trade payable accounts).