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Accounts payable is the amount owed by the company to its suppliers of goods or services and the examples of which include inventory purchased on credit from the suppliers, services received on credit from the provider of the services and taxes payable, etc.
Accounts Payables Examples
The following Accounts Payable example provides an outline of the most common Accounts Payables on Balance Sheet. It is impossible to provide a complete set of examples that address every variation on every situation since there are hundreds of such payables. Each example of the accounts payable states the topic, the relevant reasons, and additional comments as needed.
Accounts payables are short obligations owed to others including individuals, firms or companies for the purchase of goods or services on credit.
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 –
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 which are consumed in large cannot be purchased in cash and hence are bought on credit with a credit period generally of 30 days or more. Hence, until the payment is made the suppliers of raw materials, power and fuel will appear as Accounts payable.
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#2 – Transportation and Logistics
Raw materials are required to be taken from Warehouse of Supplier to place of manufacture. Similarly, goods which are produced are needed to be taken to the warehouse for storage or directly to the place of the buyer. 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 the service providers of logistics and transportation.
Similarly, Goods which needs to be imported or exported has to go through many processes complying with local regulations. Also, these goods may be required to be stored at a warehouse in port. These services will require service providers with some expertise. Hence clearing and forwarding agents 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 own manufacturing unit, certain processes might be still required to be subcontracted to another company. This is due to the fact that the other company might be an expert, or the manufacturing company does not have the required resources or licenses to do a particular work.
For example, Apple uses the services of companies in China for assembling its iPhone. Service payments pending to these Chinese companies will be a part of accounts payable in the books of Apple.
#4 – Travelling
Consider a company which is involved in the installation and commission of telecommunication equipment all over India. Hence network engineers from the company must travel continuously. Hence it is beneficial to involve a cab provider who provides services all over India. This will help in bringing down the cost of the project.
Mango Ltd. Engaged in the Below Transactions During the 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 entries
#5 – Equipment
A mobile network provider requires telecommunication equipment and infrastructure. The products are supplied to these network providers at a credit period of nearly six months. Telecommunication equipment is complex and involves innovative technologies. So, network providers who have spectrum license use these providers to build their infrastructure. Only then they will be able to provide service to a large number of people. Example: Swedish gear maker is a vendor to RCOM providing relevant equipment and infrastructure and is classified as an account payable, till the time 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 then the payments pending to lessor forms part of accounts payable. A lease is considered as an alternate because of the costliness of the capital expenditure involved. Example: An Airline operator takes aircraft on lease 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. Consider a company which 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 particular price.
This 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 –