Trade payable definition
/What is a Trade Payable?
A trade payable is an amount billed to a company by its suppliers for goods delivered to or services consumed by the company in the ordinary course of business. These billed amounts, if paid on credit, are entered in the accounts payable module of a company's accounting software, after which they appear in the accounts payable aging report until they are paid. Any amounts owed to suppliers that are immediately paid in cash are not considered to be trade payables, since they are no longer a liability.
Accounting for Trade Payables
In the accounting system, trade payables are recorded in a separate accounts payable account, with a credit to the accounts payable account and a debit to whichever account most closely represents the nature of the payment, such as an expense or an asset. Other types of payables, such as accrued expenses, dividends payable, or wages payable, are recorded in other accounts in order to more easily identify them. As an example of what the associated journal entry looks like, the following exhibit shows the journal entry for a $500 purchase of office supplies on credit.
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Optimal Accounting for Payables
Presentation of Trade Payables
Trade payables are nearly always classified as current liabilities, since they are usually payable within one year. If that is not the case, then such payables can be classified as long-term liabilities. A longer-term liability typically has an interest payment associated with it, and so is more likely to be classified as long-term debt. A sample presentation of trade payables on a balance sheet appears in the following exhibit.
FAQs
What is the difference between trade payables and non-trade payables?
Trade payables arise from the purchase of goods or services that are directly related to an entity’s primary operating activities, such as inventory purchases or routine operating expenses. Non-trade payables arise from obligations that are not part of core revenue-generating operations, such as income taxes payable, dividends payable, or accrued interest. The distinction helps users assess operating liquidity and working capital tied to normal business activity.
Terms Similar to Trade Payable
Trade payables are also known as trade accounts payable or accounts payable.