Reporting the Inventory Portion of Accounts Payable

When a lender, an accountant, or a loan covenant worksheet asks for the "inventory accounts payable amount," they want one number: the slice of your accounts payable balance that is owed for inventory you already have on hand. It is a simple idea with a surprisingly fiddly derivation, and this article walks through the mechanics of getting it right.

What does the field actually ask for?

The field asks you to enter how much of the current Accounts Payable balance is for inventory you already have on hand. Two conditions must both hold. The amount must still be unpaid, and the goods it relates to must have been received. A supplier invoice for goods still in transit does not belong here, because you do not yet have the inventory. Neither does a bill for freight, supplies, or services, because it is not inventory at all.

The reason for the split

The number feeds two common analyses. First, lenders use it to size true working capital: if a large share of payables is secured by salable stock, that portion behaves differently from payables for rent or professional fees. Second, it supports a quick reasonableness check on the inventory balance itself. If you claim $80,000 of stock on hand but only $5,000 of payables relates to it, and you buy heavily on terms, something may be understated on one side or the other.

How do you derive the amount?

Start from the aged accounts payable detail, not the control total. Filter or tag supplier invoices by what they were for. For a bookkeeper running a clean chart of accounts, the easiest route is to code inventory purchases to dedicated expense or inventory accounts at entry time, so the split falls out of the ledger rather than being reconstructed later.

Where the coding was not that granular, work vendor by vendor. Inventory suppliers are usually obvious: the ones whose bills correspond to goods received and priced into your stock. Pull their open invoices from the AP aging, confirm the goods were received before the report date, and sum the outstanding balances.

A worked example: the AP aging shows $62,400 open at month end. Of that, $18,000 sits with two merchandise suppliers whose goods are on the shelf, $4,000 with a freight broker, and the rest with utilities, insurance, and a landlord. The inventory accounts payable amount is $18,000. The freight bill is a cost of getting inventory in, but it is not itself a purchase of stock already on hand, so it stays out unless your reporting template defines the field more broadly.

Which judgement calls come up?

Three recur. Goods received but not yet invoiced sit in a receiving accrual, not in AP, so they are excluded even though inventory exists. Goods invoiced but not yet delivered are excluded because the inventory does not exist yet, even though the payable does. And supplier bills that mix inventory with other items, such as packaging or a service call, need an allocation; use the invoice line detail rather than a guess.

Consistency matters more than precision. Pick a definition, apply it the same way each period, and note the basis in your working papers so the next person can reproduce the figure.

Where does the number get used?

The figure typically lands on a loan application, a covenant compliance schedule, or an internal working capital dashboard. It is a disclosure split, not a new journal entry. You are not reclassifying payables in the general ledger; you are reporting a subset of the existing balance. Keep the supporting aging and the supplier-level backup with the period's working papers so the number can be traced and defended at review.