Trade payable

What it means

Amounts owed to suppliers for goods or services purchased on credit in the ordinary course of business.

Example

If you buy stock on credit for RM3,000, that supplier is a trade payable until you pay.

Why it matters

Trade payables are a current liability; paying them on time maintains supplier relationships.

In practice

A trade payable is a credit balance in the purchases ledger. It is reported as a current liability in the statement of financial position, and it is cash the business must pay out soon. It arises from buying goods or services on credit to use or resell.

Suppose the business buys inventory on credit for RM3,200 and pays RM1,200 before the year end. The outstanding RM2,000 is the trade payable. Paying it later reduces both the bank balance and the payable. It never appears as an expense, because the purchase was already recorded when the goods were received.

Students often confuse it with a trade receivable, its opposite. A payable is owed by the business (a liability). A receivable is owed to the business (an asset). It also differs from an accrual, which is an expense used but not yet invoiced or paid, rather than a supplier's outstanding invoice.

If supplier accounts and control accounts give you trouble, one of our teachers can go through them with you question by question. Book a trial class.

Related terms

• Trade receivable
• Current liability
• Control account
• Credit purchase
• Discount received
• Liability
• Purchases ledger
• Statement of account

Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 3.4 Control accounts (page 13); sub-topic 6.4 Interested parties (page 19).

Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.