Accounts Payable is classified as which type of account?

• A. Asset
• B. Liability
• C. Owner's Equity
• D. Revenue

Answer: (B)

Accounts payable represents amounts a company owes to suppliers for goods or services received but not yet paid for. This creates a present obligation that will require a future outflow of resources, so it sits on the balance sheet as a liability. It’s not an asset because assets are resources owned by the company, not amounts owed. It’s not owner’s equity because that reflects the owners’ interest in the business, not creditor claims. It’s not revenue because revenue increases equity through income, not a liability. In practice, accounts payable is a current liability recorded when you buy on credit, and it decreases when you make payments to suppliers.