Accounts payable

What counts as accounts payable

Accounts payable only exists once there is a bill. An accounting practitioner source defines it this way:

"Accounts payable are the amounts that a company owes to its suppliers," "only created when purchases are made on credit."

Source: The difference between accounts receivable and accounts payable, AccountingTools

For a board, that means the mowing invoice sitting in the manager's inbox, the elevator maintenance contract not yet paid, and the insurance bill due next week all belong in accounts payable until the check clears. Once paid, the amount leaves accounts payable and shows up as cash gone.

Accounts payable vs. accrued expense

These two get confused constantly because both represent money the association owes. The difference is whether a bill exists yet.

Accounts payable means an invoice has arrived. An accrued expense means the cost has already happened but no invoice has shown up. December's electricity usage is a common example: the association used the power in December, but the utility company won't send a bill until January. Until that bill arrives, it's an accrued expense. Once it arrives, it becomes accounts payable.

Both are liabilities. The distinction only matters for how the entry gets recorded, and for knowing what to expect from next month's bills.

Why the board should watch it

A high or unexplained accounts payable balance is worth a question at the board table, and missing paperwork behind a payment is one of the clearer warning signs a forensic accountant looks for.

"Every vendor payment should be supported by an invoice, contract, work order, or other documentation."

Source: 10 Warning Signs of HOA Fraud and Embezzlement, Blake Files Forensic Solutions

An unpaid invoice sitting in accounts payable isn't itself a problem, associations carry payables every month. What deserves a question is a payable with no invoice, contract, or work order behind it, or a payables balance that keeps growing without explanation. As that same source puts it, a red flag is not a finding, but unexplained financial activity should be tested, documented, and understood.