What Is Accounts Payable and How Does It Affect Your Cash Flow?
Accounts payable (AP) is the money your business owes to suppliers or vendors for goods or services you've received but haven't paid for yet. When you receive a bill and don't pay it immediately, it becomes part of your accounts payable.
Managing AP well means paying bills on time (protecting supplier relationships) without paying too early (protecting your cash).
How Accounts Payable Works
When you receive a supplier bill and enter it in QBO, two things happen:
- The expense is recorded — your Profit & Loss shows the cost as incurred
- A payable is recorded — your Balance Sheet shows money you owe as a liability
The payable stays on your books until you pay the bill. Once paid, the liability clears and cash goes down.
Normal Procedure
The AP cycle
Bill received > Entered in QBO > Payment made > Payable cleared
AP aging
Just as you track how long customers take to pay you (AR aging), you can track how long your own bills have been outstanding. An AP aging report shows:
0–30 days: Within normal payment terms
31–60 days: Approaching or past due
60+ days: Overdue — risk of late fees or damaged supplier relationships
Your Mesa CPA bookkeeper can pull an AP aging report from QBO any time.
How AP Affects Cash Flow
AP gives you a short-term float. When you receive a bill with Net 30 terms, you have 30 days before the cash actually leaves your account — even though the expense is already in your books. This is useful for managing timing.
However, AP also creates future cash obligations. If you have $50,000 in outstanding payables, that $50,000 will leave your account over the coming weeks. Knowing your total AP helps you plan accordingly.
AP and cash flow planning
- Review your AP aging report weekly to see what's coming due
- Match payment timing to your incoming cash (don't pay a bill early if a large customer payment is still outstanding)
- Take advantage of early payment discounts when offered (e.g., "2/10 Net 30" means 2% off if paid within 10 days)
Abnormal Procedures
You missed a payment and a supplier is charging late fees.
Pay the outstanding bill as soon as possible. Record the late fee as a separate expense in QBO. If the relationship matters, a quick call to the supplier often results in the fee being waived — especially if it's a first occurrence.
A supplier sent a bill for work you dispute.
Don't enter it in QBO yet. Resolve the dispute with the supplier first, then record the agreed amount once it's settled. Let your Mesa CPA bookkeeper know it's outstanding.
You have bills in foreign currencies.
If you're being billed in USD or another currency, the payable needs to be recorded in the correct currency and converted to CAD. Multi-currency needs to be enabled in QBO. Talk to your Mesa CPA bookkeeper before entering these.
FAQ
Is accounts payable a liability or an expense?
Both, at different stages. When you enter the bill, it becomes an expense on your P&L. Simultaneously, the unpaid amount sits on your Balance Sheet as a current liability (money you owe). When you pay, cash goes down and the liability clears.
What's the difference between a bill and an expense in QBO?
A bill is for something you'll pay later — it creates a payable. An expense is for something you're paying immediately (by card or bank transfer at the time of purchase). Use bills for supplier invoices with payment terms; use expenses for immediate purchases.
How do I see my total AP at any point?
In QBO, go to Reports > Accounts Payable Aging Summary. It shows every outstanding bill grouped by age.
Does entering a bill in QBO mean the payment goes out automatically?
No. Entering a bill records the liability. You still need to take a separate action to record the payment (see: How to Mark a Bill as Paid in QuickBooks Online).