What is the classification of 'Accounts Payable'?

Accounts Payable is classified as a Current Liability because it represents amounts that a business owes to suppliers and creditors for purchases made on credit. This classification is rooted in the definition of current liabilities, which are obligations that are expected to be settled within one year or one operating cycle, whichever is longer.

When a company purchases goods or services on credit, it establishes a liability that must be paid off in the short term, typically within 30 to 90 days. By categorizing Accounts Payable as a Current Liability on the balance sheet, it gives stakeholders an accurate view of the company's short-term financial obligations, enabling better assessment of its liquidity and financial health.

Other classifications like Equity, Non-Current Liability, and Income are not appropriate for Accounts Payable. Equity pertains to the ownership interest in a company, Non-Current Liabilities refer to long-term obligations, and Income represents revenue generated from operations, none of which align with the definition or nature of Accounts Payable. Hence, the classification as a Current Liability is both accurate and essential for understanding a company’s financial position.