The Differences Between Accounts Payable & Long-Term Debt

by Ashley Mott Google

"Accounts payable" and long-term debt are accounting terms referring to specific entries on the balance sheet of a business. Although, both represent funds owed by your business, knowing the differences between these two liabilities allows for better understanding of the overall financial health of your company in the short and long term.

Accounts Payable

"Accounts payable" refers to funds owed to other businesses or creditors that must be paid within a year of the balance sheet date. The most common entries under accounts payable are ordinary expenses such as utility bills and other recurring operating costs. The accounts-payable entry on a balance sheet appears under the "Liabilities" section and a "Current liabilities" heading. Many of the entries under "Accounts payable" end up in other financial reports such as an income statement.

Long-Term Debt

Long-term debt also appears under the "Liabilities" section of the balance sheet but is typically its own heading. Long-term debts owed, such as a mortgage note, are itemized underneath. Long-term debt entries must be loans or credit issues that your business does not have to pay within one year of the balance sheet.


When your company has long-term debt, a note may come due on one of the debts during the year between balance sheets. When a note is due, the amount must be deducted from the long-term debt entry and added to the "Current liabilities" section on the balance sheet.

Debt Management

By understanding individual entries such as accounts payable and long-term debt on your balance sheet, you can review the report and obtain a snapshot of your company's current financial health. When you compare liabilities such as accounts payable with your current assets, you can determine your business' working capital at a glance. Dividing the sum of your liabilities and your long-term debt by total assets provides you a debt ratio, used to determine the overall financial position of your business. The lower the number, the less your business relies on debt for growth and development. If you seek new sources of financing, this ratio will allow potential creditors to compare the health of your company with that of other companies in the same industry.

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