Professional in Human Resources (PHR) Practice Exam

What does Accounts Payable refer to in an organization?

1. Money an organization's customers owe the organization

2. Money an organization owes its vendors and suppliers

3. Financial properties owned by the organization

4. Detailed steps towards achieving objectives

The correct answer is: Money an organization owes its vendors and suppliers

Accounts Payable refers to the liabilities that an organization has toward its vendors and suppliers for goods or services received but not yet paid for. This term represents the amount of money that the organization owes to external parties within a specified period. When a company purchases goods or services on credit, it does not immediately pay for them; instead, it creates an accounts payable entry. This entry is a reflection of the organization's obligation to settle that debt, representing a crucial aspect of working capital management. The other choices are related but distinct concepts. The first option pertains to accounts receivable, which refers to money owed to the organization by its customers. The third option describes assets, which are resources owned by the organization that provide future economic benefits. The fourth choice relates to strategic planning and does not reference financial obligations at all. Understanding accounts payable is fundamental in managing an organization's cash flow and financial health.