All About Accounts Payable (AP) in Saudi Arabia

Updated on: Nov 20th, 2023

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5 min read

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Accounts payable (AP) refer to a business’s short-term obligations to its suppliers or creditors. The accounts payables are reported under the current liabilities in a company’s balance sheet.

Also, the AP team is the business department or division responsible for making payments to suppliers and other creditors. The AP department shall verify the invoices against Purchase Orders (POs) and ensure the business receives the goods or services before making payments.

This article explains all about Accounts Payable (AP), including what it is, its process, accounts payable vs trade payables, accounts payable vs accounts receivables and FAQs.

What is Accounts Payable (AP)?

Accounts Payable (AP) is an accounting term that describes the credit purchase of goods or services from vendors or suppliers. The sum of all such outstanding payments owed to the vendors is recorded as the accounts payable on the company’s balance sheet.

Also, a business shall report the increase or decrease in total accounts payable compared to the previous period in the cash flow statement.

What is the Accounts Payable (AP) process?

The accounts payable process steps include

  • Maintaining the vendor master file
  • Receiving purchase invoices
  • Uploading invoices into an ERP or AP software
  • Verifying and 2-way or 3-way matching of invoices
  • Invoice approval as per DOA/ approval matrix
  • Processing payments

Further, it involves responding to negotiating terms, vendor inquiries and on-time payments to vendors.

It is essential to closely monitor the AP process and maintain internal controls to protect the cash and assets. The accounts payable internal controls include:

  • Identifying duplicate or fraudulent invoices
  • Avoid paying for inaccurate invoices
  • Preventing duplicate payments
  • Accounts payable audits

Accounts Payable (AP) vs Trade Payables

Accounts Payable (AP) and trade payables are used interchangeably in business parlance. However, there is a slight difference between these two terms depending on the situation.

Trade payables means the amount due to a vendor for inventory-related goods, such as raw materials. However, accounts payable include all the company’s short-term dues. Both categories fall under the broader accounts payable category, and many businesses combine and report these under the accounts payable.

For example, if a shoemaker owes money to a leather company, the dues are part of trade payables as leather is a raw material for the shoe company. Meanwhile, other payables, such as showroom cleaning supplies, fall under the accounts payable category.

Accounts Payable (AP) vs Accounts Receivables (AR)

Accounts receivable (AR) is opposite to the accounts payable. In accounts payable, a business records the money due to its vendors, whereas accounts receivable is the money owed from the customers.

When one business transacts with another on credit, the buyer records the entry as accounts payable in the books, and the seller records the same as accounts receivable.

Suppose A Ltd sold goods to B Ltd worth INR 1 lakh on credit.

  • B Ltd: Debits the purchases and credits the A Ltd account as accounts payable.
  • A Ltd: Debits the B Ltd account as accounts receivable and credits the sales.

Frequently Asked Questions

1. What is the meaning of accounts payable?

Accounts payable (AP) represents the current liability of credit purchase of goods or services.

2. Is accounts payable a credit or debit?

The vendor account will be credited under accounts payable when a business receives a purchase invoice.

3. Is accounts payable a current liability?

Yes, when accounts payable represent goods or services bought on credit from a vendor. Hence, the amount paid to such a vendor is considered a current liability.

4. What is an accounts payable turnover ratio?

Accounts payable turnover is a ratio used to measure a company’s short-term liquidity. This ratio represents the efficiency in paying off short-term debt.

A high accounts payable turnover ratio: Completing the invoice-to-payment cycle in a short time.

A low accounts payable turnover ratio: Taking more time to complete the invoice-to-payment cycle.

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