Accounts Payable Examples
Accounts payable include accrued expenses like logistics, licensing, leasing, raw material procurement, and job work. Accounts payable show the balance that has not yet been paid to the associated individual to complete the transaction.
The following Accounts Payable example outlines the most common Accounts Payables on the Balance Sheet. Since there are hundreds of such payables, it is impossible to give a complete set of examples that address every variation in every situation. Instead, each example states the topic, the relevant reasons, and additional comments.
Table of Contents
Below is the list of Accounts Payable Examples –
- Raw Materials/Power/ Fuel Purchase
- Transportation and Logistics
- Assembling and Subcontracting Works
Let us now discuss each one of them in detail –
Accounts Payable Explained in Video
Explanation of Accounts Payable Examples
#1 – Raw Materials/Power/ Fuel Purchase for Manufacturing Companies
A manufacturing company needs raw material, power, and fuel to complete the process of manufacturing and production. So, these items consumed in large quantities cannot be purchased in cash and hence are bought on credit with a credit period generally of 30 days or more. Therefore, until the payment is made, the suppliers of raw materials, power, and fuel will appear as Accounts payable.
#2 – Transportation and Logistics
Raw materials must be taken from the Warehouse of the Supplier to the place of manufacture. Similarly, goods that are produced need to be taken to the warehouse for storage or directly to the buyer’s place. So, there may be different modes of transportation (Land, Sea, and Air), and in some cases, more than one mode of transportation might be used. So instead of owning these vehicles and incurring expenses of other overheads, it is convenient to use logistics and transportation service providers.
Similarly, goods that must be imported or exported must go through many processes complying with local regulations. Also, these goods may be required to be stored at a warehouse in the port. These services will require service providers with some expertise. Hence clearing and forwarding agent services will be used. And in all cases where cash is not immediately paid to settle the services received, Accounts payables are impacted and adjusted for whenever cash is paid.
#3 – Assembling and Subcontracting Works
Although a company has its manufacturing unit, specific processes might still require subcontracting to another company. It is because the other company might be an expert, or the manufacturing company does not have the necessary resources or licenses to do a particular work.
For example, Apple uses the services of companies in China for assembling its iPhone. Therefore, service payments pending to these Chinese companies will be a part of accounts payable in the books of Apple.
#4 – Travelling
Consider a company that is involved in installing and commissioning telecommunication equipment all over India. Hence network engineers from the company must travel continuously. Thus it is beneficial to include a cab provider who provides services all over India. It will help in bringing down the cost of the project.
Mango Ltd. Engaged in the Below Transactions During March 2019
- Mar 01: Purchased INR 80000 of inventory on credit from Grapes Ltd. and paid transportation charges of INR 600.
- Mar 02: Returned damaged goods to supplier worth INR 12000
- Mar 08: Services received on credit from Orange Ltd. INR 8000
- Mar 09: Paid cash for inventory purchased and services records.
- Mar 15: Mr. Mango traveled to Delhi for an official visit. Tickets were booked via MMT on credit for INR 5000
Below are the accounts payable journal entriesAccounts Payable Journal EntriesAccounts Payable Journal Entries refers to the amount payable accounting entries to the creditors of the company for the purchase of goods or services and are reported under the head current liabilities on the balance sheet and this account debited whenever any payment is been made.
#5 – Equipment
A mobile network provider requires telecommunication equipment and infrastructure. The products are supplied to these network providers at a credit periodCredit PeriodCredit period refers to the duration of time that a seller gives the buyer to pay off the amount of the product that he or she purchased from the seller. It consists of three components - credit analysis, credit/sales terms and collection policy. of nearly six months. Telecommunication equipment is complex and involves innovative technologies. So, network providers who have spectrum licenses use these providers to build their infrastructure. Only then will they be able to provide service to many people. Example: Swedish gear maker is a vendor to RCOM providing relevant equipment and infrastructure and is classified as an account payable until payments are made for services provided.
#6 – Leasing
Continuing the previous example of account payable, but instead of purchasing the equipment, if we lease it, the payments pending to lessorLessorA lessor is an individual or entity that leases out an asset such as land, house or machinery to another person or organization for a certain period. forms part of accounts payable. A lease is considered an alternate because of the costliness of the capital expenditureCapital ExpenditureCapex or Capital Expenditure is the expense of the company's total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year. involved. Example: An Airline operator takes aircraft on leaseLeaseLeasing is an arrangement in which the asset's right is transferred to another person without transferring the ownership. In simple terms, it means giving the asset on hire or rent. The person who gives the asset is “Lessor,” the person who takes the asset on rent is “Lessee.” from the aircraft manufacturers.
#7 – Licensing
A person who has exclusive rights with the right over a product grants the license to use that product for a price, which is a License fee. For example, consider a company that wants to use Antivirus or internet security software. The licensor provides the right to use the software for a year for a particular number of systems for a specific price.
This article has been a guide to Accounts Payable Examples. Here we provide the list of top accounts payable examples along with an explanation and application. You may learn more about accounting from the following articles –