What Are Bills Payable?
Bills payable alludes to the short-term borrowing of banks from different banks, where the lender is much of the time the country's central bank. Banks will borrow money from the central bank or different banks to keep up with reserve requirements and adequate liquidity.
Bills payable is likewise an equivalent for accounts payable, most frequently found with regards to the U.K.
Grasping Bills Payable
With regards to banking, bills payable alludes to a bank's indebtedness to different banks, typically to a [central bank](/centralbank, for example, the Federal Reserve Bank in the U.S. These are short-term interbank loans that are backed by collateral comprising of the bank's promissory note and a pledge of government securities.
At the end of the day, Banks borrow this money to keep up with adequate liquidity levels. Banks are required to keep a certain amount of cash close by (in light of their loan portfolio) known as required reserves. These reserves function as a cushion to ensure that there is sufficient liquid cash close by for depositors to pull out. On the off chance that there isn't sufficient accessible cash, a bank run can follow, making the bank go under except if emergency measures are taken.
As well as borrowing from the central banks, banks can likewise borrow from different banks that happen to have excess reserves on a given day. As opposed to sit on this extra cash inactively, banks can loan these funds to those deprived with interest. These loans (i.e., the bills payable) are then exceptionally short-term loans, frequently just overnight.
Bills Payable as Accounts Payable
With regards to personal finance and business accounting, bills payable may likewise allude to liabilities that are as yet outstanding, thus must be paid (like utility bills or rent). These things are recorded as accounts payable (AP) and listed as current liabilities on a balance sheet.
Bills payable, then, at that point, can be diverged from bills receivable (a.k.a., accounts receivable), which are the funds that are owed by others to the company however not yet paid.
A third, however more uncommon definition of bills payable can allude explicitly to short-term notes issued by a company as a bill of exchange or trade acceptance. Regardless, in any case, these things would typically be listed under a company's accounts payable.
- Frequently, a commercial bank will borrow from the central bank for emergency liquidity or to meet least reserve requirements.
- Bills payable is likewise a British term for accounts payable, which is a current liability on the balance sheet.
- Bills payable comprise of the money that a bank borrows, essentially on a short-term basis, and afterward owes to different banks.