What is meant by 'accounts payable'?

Accounts payable refers to the liabilities that a business incurs when it purchases goods or services on credit from suppliers or vendors. In simpler terms, it represents the amounts a company owes to those who have provided products or services but have not yet been paid. This is a crucial aspect of accounting, as it helps businesses manage their cash flow and understand their financial obligations.

The importance of accounts payable lies in its role in maintaining good relationships with suppliers and managing working capital efficiently. By tracking accounts payable accurately, a business can ensure that it meets its payment terms, thus avoiding penalties or strained relationships with suppliers.

Other options describe different financial concepts, such as receivables (money owed to the business), cash reserves (funds set aside for future needs), and revenue (money earned from operations), which do not align with the definition of accounts payable.