State BPA Fundamental Accounting Practice Exam

What type of account is accounts payable classified as?

1. Asset

2. Liability

3. Equity

4. Expense

The correct answer is: Liability

Accounts payable is classified as a liability because it represents an obligation that a business owes to its creditors for goods and services that have been received but not yet paid for. When a company purchases items on credit, it incurs a debt that must be settled in the future, reflecting the company's duty to pay. This makes accounts payable a critical component of a company's balance sheet, as it directly impacts the overall financial position by indicating the company's short-term financial obligations. Liabilities, such as accounts payable, are important for understanding a company's leverage and financial health, indicating how much of its funding comes from borrowing versus equity. In contrast, assets represent resources owned by the company, equity reflects the ownership interest in the business, and expenses are costs incurred during the operations. Thus, classifying accounts payable as a liability correctly identifies it as a debt that the company needs to manage.