when a customer or business makes a purchase on credit a general ledger account known as accounts payable is created or the current one is increased accounts payable refers to the short term debt that a company owes another entity during conducting business operations as the company purchases more goods on credit this account will increase the account will decrease as the company pays off its outstanding bills 
any purchases made with credit can be referred to as purchased on account a business that owes another entity for goods or services rendered will record the total amount as a credit entry to increase accounts payable the outstanding balance remains until cash is paid in full to the entity owed 