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Bills Payable Definition

What Are Payments Payable?

Payments payable refers back to the short-term borrowing of banks from different banks, the place the lender is commonly the nation’s central financial institution. Banks will borrow cash from the central financial institution or different banks in an effort to keep reserve necessities and sufficient liquidity.

Payments payable can be a synonym for accounts payable, most frequently seen within the context of the U.Ok.

Key Takeaways

  • Payments payable include the cash {that a} financial institution borrows, primarily on a short-term foundation, after which owes to different banks.
  • Typically, a business financial institution will borrow from the central financial institution for emergency liquidity or to fulfill minimal reserve necessities.
  • Payments payable can be a British time period for accounts payable, which is a present legal responsibility on the stability sheet.

Understanding Payments Payable

Within the context of banking, payments payable refers to a financial institution’s indebtedness to different banks, normally to a central bank such because the Federal Reserve Financial institution within the U.S. These are short-term interbank loans which can be backed by collateral consisting of the financial institution’s promissory note and a pledge of authorities securities.

In different phrases, Banks borrow this cash in an effort to keep sufficient liquidity ranges. Banks are required to maintain a sure amount of money readily available (primarily based on their mortgage portfolio) often called required reserves. These reserves operate as a cushion to make it possible for there may be sufficient liquid money readily available for depositors to withdraw. If there may be not sufficient obtainable money, a bank run can ensue, inflicting the financial institution to go beneath except emergency measures are taken.

Along with borrowing from the central banks, banks may borrow from different banks that occur to have excess reserves on a given day. Fairly than sit on this further money idly, banks can lend these funds to these in want with curiosity. These loans (i.e., the payments payable) are then very short-term loans, typically simply in a single day.

Payments Payable as Accounts Payable

Within the context of non-public finance and enterprise accounting, payments payable may seek advice from liabilities which can be nonetheless excellent, and so have to be paid (similar to utility payments or lease). This stuff are recorded as accounts payable (AP) and listed as current liabilities on a balance sheet.

Payments payable, then, might be contrasted with payments receivable (a.ok.a., accounts receivable), that are the funds which can be owed by others to the corporate however not but paid.

A 3rd, however much less widespread definition of payments payable can refer particularly to short-term notes issued by an organization within the type of a bill of exchange or commerce acceptance. In both case, nevertheless, this stuff would usually be listed beneath an organization’s accounts payable.

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