when using the indirect method to prepare the cash flow statement the net increase or decrease in ap from the prior period appears in the top section the cash flow from operating activities 
management can use ap to manipulate the company s cash flow to a certain extent for example if management wants to increase cash reserves for a certain period they can extend the time the business takes to pay all outstanding accounts in ap however this flexibility to pay later must be weighed against the ongoing relationships the company has with its vendors it s always good business practice to pay bills by their due dates recording accounts payableproper double entry bookkeeping requires that there must always be an offsetting debit and credit for all entries made into the general ledger to record accounts payable the accountant credits accounts payable when the bill or invoice is received the debit offset for this entry generally goes to an expense account for the good or service that was purchased on credit the debit could also be to an asset account if the item purchased was a capitalizable asset when the bill is paid the accountant debits accounts payable to decrease the liability balance the offsetting credit is made to the cash account which also decreases the cash balance for example imagine a business gets a 500 invoice for office supplies when the ap department receives the invoice it records a 500 credit in accounts payable and a 500 debit to office supply expense the 500 debit to office supply expense flows through to the income statement at this point so the company has recorded the purchase transaction even though cash has not been paid out this is in line with accrual accounting where expenses are recognized when incurred rather than when cash changes hands the company then pays the bill and the accountant enters a 500 credit to the cash account and a debit for 500 to accounts payable a company may have many open payments due to vendors at any one time all outstanding payments due to vendors are recorded in accounts payable as a result if anyone looks at the balance in accounts payable they will see the total amount the business owes all of its vendors and short term lenders this total amount appears on the balance sheet for example if the business above also received an invoice for lawn care services in the amount of 50 the total of both entries in accounts payable would equal 550 prior to the company paying off those obligations accounts payable vs trade payablesalthough some people use the phrases accounts payable and trade payables interchangeably the phrases refer to similar but slightly different situations trade payables constitute the money a company owes its vendors for inventory related goods such as business supplies or materials that are part of the inventory accounts payable include all of the company s short term obligations for example if a restaurant owes money to a food or beverage company those items are part of the inventory and thus part of its trade payables meanwhile obligations to other companies such as the company that cleans the restaurant s staff uniforms fall into the accounts payable category both of these categories fall under the broader accounts payable category and many companies combine both under the term accounts payable accounts payable vs accounts receivableaccounts receivable ar and accounts payable are essentially opposites accounts payable is the money a company owes its vendors while accounts receivable is the money that is owed to the company typically by customers when one company transacts with another on credit one will record an entry to accounts payable on their books while the other records an entry to accounts receivable 