Understanding the difference between accounts payable and receivable helps professionals better understand the company’s finances. This knowledge helps determine the company’s assets and liabilities.
Clarifying the company’s financial position helps ensure adequate cash flow. It also uncovers money for expenditures and methods to improve the company’s financial standing.
Learn the difference between accounts payable and receivable in finance positions.
Accounts Payable
Accounts payable is the record of the money owed to other companies.
- This record helps track the company’s expenses.
- Payment is typically required within 30 days of the invoice.
- Accounts payable is a current liability in accounting and financial records.
Accounts Receivable
Accounts receivable is the record of the money that is owed to the company.
- This record helps track the company’s income.
- Payment is typically required within 30 days of the invoice.
- Accounts receivable is a current asset in accounting and financial records.
- This record shows how much income is expected during a set period.
- Accounts receivable track which customers have outstanding, late, underpaid, or overpaid invoices.
Differences Between Accounts Payable and Receivable
Tracking: Accounts payable considers the amount of money needed to pay companies. This is considered a current liability because it is due within a short time.
Conversely, accounts receivable considers the amount of money that the company is owed. This is considered a current asset because it should be received within a short time.
Credits: Accounts payable is the credit amount that must be paid to other companies. These numbers may be recorded as negative because they are owed.
In contrast, accounts receivable are the credit amount owed to the company. These numbers are typically recorded as positive because they reflect money gained.
Calculations:
Accounts payable may be calculated using this method:
- Enter the invoice number, purchase date, products purchased or services rendered, and company’s name.
- Include the amount due as a credit.
- Use the contract or receipt to verify the accuracy of the invoice date and amount.
- Contact the company if there are invoice errors.
- When a payment is made, update the records as a debit.
- Record the invoice number, payment date, amount, company name, and payment method.
- File the invoice in an area designated for unpaid invoices.
Accounts receivable may be calculated using this method:
- Enter the date, company’s name, and amount owed.
- Include the amount due as a debit.
- Keep any receipts or contracts that correspond with the amount.
- Generate an invoice with the date, products or services provided, amount, due date, and payment information.
- When a payment is received, update the records as a credit.
- Record the invoice number, payment date, amount, company name, and payment method.
- File the invoice in an area designated for paid invoices.
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