The practice of accounting involves recording, reporting and analyzing the financial transactions of a business to create reports and statements that help decision makers determine their financial position and manage their profits and losses. Accounts payable and accruals are part of the accounting process.
An account payable is the economic obligation of a person or company who owes a debt for products or services purchased. In the accounting world, obligations or debts are referred to as liabilities, and all companies have them. For example, if Company A supplies materials to Company B, Company B would have a debt or liability to pay.
There are two ways to handle accounting transactions. The accrual accounting method records the effects of business transactions as they occur, while the cash-basis accounting method records transactions only when cash is received or paid. The most commonly used method is accrual accounting.
An accrual liability is an expense that a business has incurred but not yet paid. It does not necessarily mean the payment is past due, but rather that it is due in the future. These expenses are also known as account payable accruals.
Account payable accruals are expenses that are normally periodic in nature and are placed on a company's balance sheet because the company expects them to be paid. These expenses may include future salaries or wages, interest, taxes and rent.