Concepts

Accounts payable

Accounts payable is the money your business owes to suppliers and other creditors for goods or services you have received but not yet paid for.

Accounts payable is the total of unpaid bills your business owes to suppliers and other creditors. When you receive stock, a service or a bill and agree to pay later, the amount is recorded as a liability until you pay it. In accounting software, accounts payable is usually a control account that is supported by a list of supplier bills, each with an amount, a due date and details of any GST included.

Managing payables well is part of managing cash flow. Paying bills too early drains cash, while paying late can damage supplier relationships, cause penalties or cut off supply. Many businesses use an ageing report that groups unpaid bills by how overdue they are, and schedule payments to take advantage of any trading terms. The aim is to pay on time but not earlier than necessary.

For GST, accounts payable is closely linked to claiming credits. Under accrual accounting for GST, you generally claim the GST credit in the period you receive a valid tax invoice for the purchase or pay for it, whichever happens first, even if the bill remains unpaid. Under cash accounting for GST, you claim the credit when you pay. This means your payables records and your BAS need to be consistent with the method you use.

To claim a credit for a business purchase over $82.50 including GST, you need a valid tax invoice from the supplier. When entering a bill, record the supplier, date, invoice number, GST-exclusive amount, GST amount and the appropriate GST code. Bills that include private items or items on which no credit is allowed, such as input-taxed purchases, should be coded accordingly so the BAS is accurate.

Accounts payable also includes other amounts due, such as PAYG withholding, superannuation, payroll tax and amounts owing to the ATO, although these are usually recorded in separate liability accounts. Keeping them separate helps identify exactly what is due and when. Bank reconciliation helps confirm that payments have actually been made and recorded against the right bill.

A common misunderstanding is that you can only claim GST credits after paying a supplier. That depends on the accounting method. Another is neglecting to record bills until they are paid, which understates expenses and liabilities and can lead to missed credits. It is also important to keep the tax invoice, not just the payment record. This is general information only, so confirm how this applies to you with the ATO or a registered tax professional.

← Back to Glossary Open the GST calculator