Accounts payable are considered as the payment that the company owes and Account receivables are considered as the assets and receivables of the company from clients and customers.
Account payable and Account receivable are the two aspects of any business that is related to any expense and revenue and these two terms should always be balanced in order to make the business credible and to have a pleasant relationship between customers and suppliers.
These two terms also help to track the financial information for accountants about the company that whether the financials of the company are healthy or if is there any long- or short-term liability or profitability of the business or not.
Is account payable the debit or credit?
AP is defined as any debt that a company has to pay to its vendors or suppliers due to the goods and services purchased in a calendar year.
Where is account payable in a balanced sheet?
In a balance sheet, Account Payable is written under the Current Liabilities section. Some examples of accounts payable for the company are payrolls, travel expenses, raw materials or transportation, etc. Once the invoices for the products and services are received in an agreed-upon time period, it is then classified as account payable and is written under the ledger of liabilities.
What is account receivable in simple words?
AR is the amount that any company or customer owes to you. It is considered as the assets of the company because a company is receiving the money. In this term, it is the company itself that is responsible to send the invoices to customers on time. Account Receivables also help the company to keep an update on their pending payments that are yet to be received from the customers.
Where is account Receivable in a balanced sheet?
AR falls under the category of Current assets in a ledger. Once the payment is fully received, it is then removed from the account receivable, and if the payments are getting late, the account department can send a notice with late fees charge alongside the original invoice.
What is the importance of Account Payable and Account Receivable?
Account Payable is important because it helps the company have a good cordial relationship with its suppliers and creditors by paying them their costs on time.
Meanwhile, Account Receivables are also important as it helps the company to have a wholesome and strong cash flow. Consequently, this cash will help the business to meet its expenditures on time.
We all know that late payments lead to major distress in a business all around the world and it affects the cash flow of the company badly which ends in losses. In order to evade these circumstances, AR and AP are the two major aspects of finance that help businesses to pay and receive the payments in an agreed-upon time period.
Difference between Account Payable and Account Receivable
- AP is the disbursement owed by the company itself while AR is the payment owed by its customers to the company.
- Account Payable are classified as current liabilities while Account Receivables are classified as current assets of the company.
- Receivables only fall in a single account that is receivable account but payable has many accounts such as interest payable, sales tax payable, income tax payable, salary payable, etc.