Financial data is one of the most valuable tools your business has at its fingertips. It helps you understand the health of your business, make plans for the future, and even acquire additional loans or investments. One of the most basic forms of financial data is your business’ balance sheet, and this blog will explore how to properly record a specific component of this essential document–accounts payable.
Understanding balance sheets
A balance sheet is an overview of your business’ financial position at a specific moment in time. It follows a specific formula that most finance professionals have seen before:
Assets = Liabilities + Shareholders’ Equity
While this quick snapshot can’t provide much information on its own, it can be compared to other periods in order to gain a holistic view of your business finances and cash flow. It also helps you to track financial transactions like accounts payable and accounts receivable.
You can think of a balance sheet a bit like a single picture on your phone. A single picture doesn’t tell you much about your life, growth, or experiences, but when you look at an entire years’ worth, it tells a more compelling story about who you are.
Do accounts payable appear on a balance sheet?
Accounts payable should absolutely appear on a balance sheet as it represents outstanding payments owed by your business, and it’s one of the most common line items. When looking at the formula “Assets = Liabilities + Shareholders’ Equity,” accounts payable obligations will fall under the “liabilities” side of the equation.
As a matter of fact, accounts payable obligations are actually one of the most common liabilities that businesses will have, and logging these transactions should be an essential part of your accounts payable process. Everything your business pays–or plans to pay–should be included on your balance sheet.
What is accounts payable on a balance sheet?
Accounts payable on a balance sheet are part of a company’s liabilities, or, in simple terms, what your company owes. Accounts payables are typically defined as financial obligations to suppliers and vendors. Like all liabilities on a balance sheet, accounts payable will fall into two categories: short-term liabilities and long-term liabilities. However, since most accounts payable terms dictate that payment must be made within 90 days, accounts payable liabilities typically fall under the short-term category. If you have a longer-term agreement with specific vendors, you can explore this as part of your accounts payable process and adjust as needed.
How to record accounts payable on balance sheet
While a balance sheet can be created from scratch, BILL offers a complimentary Excel template to save you some time. Simply replace your business name and pull the financial information from your records, and the built-in Excel formulas will help speed up your process. To help you gain full visibility, you should compare two sets of data at once.
Typically, businesses will compare data between fiscal years (for example, comparing data from March 2022 and March 2023). But if your business is new, you can also compare from month to month until you have more data to work with.
Accounts payable balance sheet examples
Here is an example of a company's balance sheet created using this complimentary template from BILL. You can see that it follows the formula of “Assets = Liabilities + Shareholders’ Equity.”
The first section of this example explores the assets of the company. This section focuses on current assets, including cash and cash equivalents (which can include things like bank accounts, stocks, and bonds), accounts receivable, inventory, and more.
The assets section also includes fixed assets like property and equipment. This can include things like company vehicles and machinery, minus their depreciation. The final section within the assets category includes non-current assets like intangible assets, accumulated amortization, and prepaid deposits.
The second section is devoted to current liability items, which is what your company owes, and this is where accounts payables come into play, as each outstanding AP transaction is a current liability. The current liabilities section includes accounts payable, accrued liabilities, and deferred revenue.
The long-term liabilities section represents money owed by your company in the coming years and includes things like credit facility, long-term loans, deferred tax liabilities, and lease liabilities.
The final section explores stockholder’s equity, including common stock, additional paid in capital, net income, and retained earnings.
Once you have all of this information written out, you can complete the formula “Assets = Liabilities + Shareholders’ Equity” and gain a comprehensive view of your business’ finances.
Ready to organize your financial back office?
If you find that you’re wasting a ton of time on manual processes within your accounts payable department, it might be time to put AP automation to work for your business!
Take a demo with BILL to see how you can easily integrate your accounts payable with your existing ERP or accounting software to create a streamlined, automated financial operations system. Utilizing an automated accounts payable workflow can help optimize cash flow, reduce late payments, and give you more visibility into your finances. BILL can give you a holistic view of your company's accounts payable transactions, accounts receivable, and overall cash flow. See how BILL’s AP automation can help minimize the manual work that it takes to manage your financial back office!
Accounts payable on the balance sheet FAQ
Now that we’ve covered the basics, let’s review!
Why do businesses need a balance sheet?
Evaluating your balance sheet helps you understand the overall financial health of your business, and is an essential part of your business operations. When your company’s assets are more than your liabilities, you are in a good financial standing. You can also use your balance sheet to quickly calculate your debt-to-equity ratio. By dividing your company’s total liabilities by its shareholder’s equity, you can determine your company’s financial leverage.
If you ever apply for a loan or approach new investors, your potential partners will ask to see your balance sheets throughout the year. It’s essential to keep accurate financial records every month so you’re prepared for growth opportunities when they arise.
Where do you put accounts payable on a balance sheet?
Typically, your business’ liabilities will be broken down into two categories: short-term and long-term. Typically, short-term liabilities are defined as anything due within the business’ fiscal year. Long-term liabilities are those spread out over a longer period, and can include things like interest and principal on issued bonds, pension funds, and deferred tax liabilities. Since short-term liabilities are those due within the next calendar year, most accounts payable obligations will fall into the short-term category.
Is accounts payable on the balance sheet or income statement?
Accounts payable appear on the balance sheet, not the income statement. Accounts payable is a liability because it is a debt owed to another party, not an income or expense item.
Are accounts payable short-term or long-term liabilities?
Accounts payable terms are typically shorter than 90 days, so they count as a short-term liability (or a current liability). To review your payment terms with each vendor, check your vendor invoices or agreement.
What are the next steps after I create my accounts payable balance sheet?
After you’ve created your accounts payable balance sheet, you can work on your income statement to gain a holistic view of your cash flow. These two financial statements will help you evaluate the overall health of your business. BILL offers a complimentary income statement template to help you save time.