The same principle applies to payable accounts. Conversely, if a business has a credit balance in its asset account, it has more assets than liabilities and is owed money by others.
If a business has a debit balance in its asset account, the normal balance of accounts payable, it owes money to someone. This ensures that the books are always balanced. A double-entry accounting system records each transaction as a debit and a credit. What Are Debits And Credits?ĭebit and credit are the two essential accounting terms you must know to understand the double-entry accounting system. To better understand AP, we must first know the basic concept of debits and credits. Understanding Accounts Payable: Is It A Debit Or A Credit? On a company's balance sheet, payables are recorded as a current liability.
Accounts payable (AP) are short-term obligations that a company owes to its creditors or suppliers, but company has not yet paid for them.
