How do accounts payable differ from accrued liabilities?

Accounts payable and accrued liabilities have distinct characteristics that set them apart in accounting. Accounts payable consists of amounts a company owes to its suppliers for goods and services purchased on credit. When a company receives a product or service but has not yet paid for it, that obligation is categorized as accounts payable. It represents a formal agreement to pay based on the invoice terms provided by the supplier.

On the other hand, accrued liabilities refer to expenses that a company has incurred but has not yet paid by the end of the accounting period. These are typically related to costs like wages, taxes, interest, and other operational expenses that have accumulated over time but have not yet been settled in cash. Accrued liabilities may not always be tied to a specific invoice from a supplier, highlighting that they can cover various expenses not directly linked to purchasing goods.

Thus, the correct understanding of their differences is essential for accurately managing a company's balance sheet and ensuring proper financial reporting. The distinction emphasizes the timing and nature of the obligations, which is crucial for stakeholders looking to assess a company's liquidity and overall financial health.