Trade payables Explained With Examples & formulas

Trade payables Explained With Examples & formulas

Trade payables are short-term expenses incurred by an organization usually from credit purchases of inventories or stock from suppliers. they are usually recorded in the liability section of a company’s balance sheet.

It is the total cost owed by an organization to its vendor for all the inventories purchased on credit.

Note that any cash paid for inventory that was initially purchased on credit is no longer considered trade payable.

Immediately cash or bank payments have been made for inventory purchased on credit. It is no longer referred to as Trade payable but rather purchases.

Also, according to Investopedia, “They 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.”

See Also: Trade Account Receivables Explained In Accounting

Formula

Trade payable days = Average account payable divided by purchases multiplied by 365 days.

Average T.P = Account payable at the beginning of the year plus Account payable are the end of the year divided by 2.

Examples:

See Also: Revaluation Of Assets And Reassessment Of Liabilities

Another Name For Trade Payables

Trade payables can also be referred to as Creditors or Accounts payable. Furthermore, In the accounting system, credit purchases for inventory are recorded in the Trade account payable.

Is Trade Payables A Current Asset?

No, Trade payable are not assets, Rather they are current liabilities. and should be recorded in the trade payables account of the financial statement. Moreover, if the payment of the inventory purchased on credit exceeds one year, Then they are called non-current liabilities.

Recommended: Distinction Between A Real Asset And A Financial Asset

Are Trade Payables The Same as Sundry Payables?

Yes, trade payable are same as sundry payable. Moreover, Sundry payable are amount owed by a company to a vendor for inventory purchased on credit.

See Also: Appointment Of Auditors In Private Company In Nigeria

Summary Of Trade Payables

• Trade payables can also be referred to as Account payable or creditors

• Account payables are current liabilities if the debt is paid within 12 months
• Account payables are also known as sundry payables
• Account payables are never assets
• Immediately cash is paid for inventory that was initially purchased on credit, they are no longer considered as trade payable.