Financial Counseling Certification Program (FiCEP) Practice Exam

In business ownership, what does 'accounts payable' refer to?

1. Money owed to you

2. Money held in savings

3. Amount of money you owe others

4. Future income projections

The correct answer is: Amount of money you owe others

In the context of business ownership, 'accounts payable' specifically refers to the amount of money a business owes to its suppliers or creditors for goods and services received. This is considered a liability on the company's balance sheet. When a company purchases items on credit, it does not immediately pay for them; instead, it records this obligation as accounts payable. This accounting term plays a crucial role in managing cash flow and working capital, as it impacts the company's ability to meet its short-term liabilities. The other options do not represent accounts payable: money owed to you refers to accounts receivable, which is an asset reflecting money expected to be received. Money held in savings is typically categorized as cash or cash equivalents on the balance sheet. Future income projections may refer to forecasting revenue, but they do not pertain to the specific liabilities the business currently holds.