In accounting, there is sometimes confusion when working between accounts payable vs. accounts receivable. The two types of accounts are very similar in terms of how they are recorded, but it is important to differentiate between accounts payable and accounts receivable, as one is an asset account and the other is a liability account.
What is Accounts Payable?
Account Payable refers to the money that the company owes to any third party. The third parties can be Vendors, Employees and other expenses not loans. One common example is purchases made for goods or services from other companies on credit.
What is Accounts Receivable?
Accounts receivable are part of current assets that keeps track of the money third parties owe you. It mainly represents the amount recoverable from the parties to whom we have sold goods or provided services on credit.
DIFFERENCE BETWEEN ACCOUNTS PAYABLE AND ACCOUNTS RECEIVABLE
|ACCOUNTS PAYABLE||ACCOUNTS RECEIVABLE|
|Accounts Payable is the amount that company owes to third party.||Accounts Receivable is the amount that the customer of the company owe to it.|
|Current liability of the balance sheet.||Current asset of the balance sheet.|
|Payables have multiple categories of accounts like sales payable, interest payable, income tax payable etc.||Receivable have only be trade receivable.|
|This account is created because of purchasing material.||This account is created because of selling goods.|
|Account Payable (A/P) = Cash Out||Account Receivable (A/R) = Cash In|
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