What do Accounts Payable represent in a business?

Accounts Payable represent the amount a business owes to its suppliers for materials and services that have been purchased on credit. This reflects a liability on the company’s balance sheet, indicating that the business has received goods or services but has not yet paid for them.

When a company buys materials on account, it increases its inventory (the goods acquired) and also records a corresponding liability in Accounts Payable, as it will need to pay for those materials later. This indicates the obligation to settle debts with suppliers, which is a crucial aspect of managing cash flow and business operations.

The other options reflect different financial aspects: cash on hand pertains to the liquid assets available immediately; sales revenue represents income generated from selling goods or services; and employee wages constitute operating expenses but are not related to what the business owes to suppliers for purchases.