The term accounts payable (often referred to as vouchers payable for a voucher
system) is used to describe short-term obligations arising from the purchase of goods
and services in the ordinary course of business. Typical transactions creating accounts
payable include the acquisition on credit of merchandise, raw materials, plant assets
and office supplies.
Other sources of accounts payable include the receipt of services, such as legal and
accounting services, advertising, repairs and utilities. Interestbearing obligations should
not be included in accounts payable but shown separately as bonds, notes, mortgages,
or installment contracts.
Invoices and statements from supplies usually evidence accounts payable arising from
the purchase of goods or services and most other liabilities. However, accrued liabilities
(sometimes called accrued expenses) generally accumulate over time, and
management must make accounting estimates of the year-end liability. Such estimates
are often necessary for salaries, pensions, interest, rent, taxes and similar items.
In thinking about internal control over accounts payable, it is important to recognize that
the accounts payable of one company are the accounts receivable of other companies.
It follows that there is little danger of errors being overlooked permanently since the
client’s creditors will generally maintain complete records of their receivables and will
inform the client if payment is not received. This feature also aids auditors in the
discovery of fraud, since the perpetrator must be able to obtain and respond to the
demands for payment. Some companies, therefore, may choose to minimize their
record keeping of liabilities and to rely on creditors to call attention to any delay in
making payment. This viewpoint is not an endorsement of inaccurate or incomplete
records of accounts payable, but merely recognition that the self-interest of creditors
constitutes an effective control in accounting for payables that is not present in the case
of accounts receivable.