A/c Payable Vs A/c Receivable
We are living in the world of marketing and every need, facility or service is
related
to transactions. Many people shop by using credit cards. Entrepreneurs need loans or
investment to start a self created business. These and many more business related
activities run through a proper channel of check and balance. In turn, check and
balance
requires proper accounting abilities. In this article, we are going to discuss the
differences between accounts payable and accounts receivable with some pros and
cons.
What is meant by Accounts Payable?
Accounts payable is a type of liability that is recorded in the creditor’s ledger.
It is
the amount a company owes to its supplier for purchasing goods for trading purposes.
For
example, company A produces detergent and restocks its raw material (chemical X and
Y)
monthly; however, it pays back the supplier at a later time in the future
irrespective of
the fact that the chemicals have been used for production. It means company A owes
payment
to its supplier which shall be booked in the creditor’s ledger.
What is meant by Accounts Receivable?
It is the amount of money that a customer owes to the company for purchasing goods
or
services from the company. It is the amount that is yet to be paid to a company or
firm
but should be paid within the time period specified. By that deadline, the customer
must
pay back irrespective of the fact that the purchased goods have been used or not.
For
example: you sell cosmetics and your customer pays for it monthly. It means you
don’t
get the payment at the time of purchase and will be paid sometime in the future.
This
amount is recorded as accounts receivable in the debtor’s ledger. Let’s go deeper
into
the concept to know more. Let’s dive into it!
Similarities:
- Whether accounts payable or accounts receivable, both are current accounts because the amount must be paid back within 12 months. They are also known as zero accounts since they enable huge transactions on daily basis.
- Both have to be recorded in ledger journals.
- Both change income on daily basis.
- Both accounts are related to invoicing.
Differences
-
Nature of the accounts:
Accounts Payable are liabilities that are owed by a company or an individual and result in a decrease in the income. Accounts Receivable are assets that will increase the income of a company or individual. -
Type of transactions:
Accounts Payable is the result of purchasing and getting services. Accounts Receivable is the result of selling and offering services. -
Responsible party:
Accounts payable is the responsibility of companies and creditors. Accounts Receivable is the responsibility of customers and debtors. -
Money flow:
In Accounts Payable there is outflow of money, whereas in Accounts Receivable there is inflow of money.
It is evident that accounts receivable and accounts payable, both go hand in hand. If one party has accounts payable, it is a sure thing that the other will have accounts receivable. Whether money flows in or out, it is certain that both sides share equal benefits. One side receives goods and services while the other receives money!