Accounts Payable and Accrued Expenses
Sometimes governments report both accounts payable and accrued expenses on one line on the statement of net assets. Other times, separate amounts are reported for each. For the purpose of explaining what these liabilities represent, it is helpful to discuss accounts payable and accrued expenses together.
Accounts payable essentially represent the unpaid bills of a government. These are bills for goods or services that have been received by the organization prior to the end of its fiscal year.
Practical Example The government receives an invoice in the amount of $1,000 for stationery that it ordered with the new mayor’s name. The stationery was received on June 15. The fiscal year-end of the organization is June 30, and a check for $1,000 was issued to the stationery supply store on July 7. As of
June 30, the government records a $1,000 accounts payable (representing the unpaid invoice) along with a $1,000 supplies expense. (Note that accounts payable also arise when an organization buys assets or incurs expenses.) There are two other situations that might also give cause to record amounts as accounts payable, and both of these situations involve issuance of checks. Let us say that a government with a June 30 year-end writes checks for all of its outstanding bills on June 29, even though it realizes that it will not have available funds in its bank account to clear the checks until the second week of July. The government holds all of the checks written on June 29 and first mails them on July 12. When the checks are written, most automated (and manual) accounting systems would record a decrease in cash and a decrease in accounts payable. However, in this example the government has neither expended cash nor reduced its accounts payable on June 30—all it really did was write checks. Accordingly, the total amount of the checks held by the government until past year-end would be added back to cash and to accounts payable.
Taken From : Governmental Accounting Made Easy