Accounting is a part of any business which incorporates financial transactions and its management. The financial transactions incorporates several accounts, among which accounts receivable and accounts payable are very fundamental. In business accounting, these are essential jargon.
Accounts payable is the total sum of the amount which a firm is liable to pay for the services or goods purchased. On the other hand, accounts receivable refers to the total sum of the amount which a firm is liable to receive from the sales of goods & services. However, both the amounts are not cleared immediately.
The sale for one company is the purchase of another, and hence the transaction is recorded as accounts receivable in the first company while it is recorded as accounts payable in second company. Therefore, these two terms are associated with one another and cannot be separated.
Accounts payable v/s accounts receivable – the prominent differences
Though accounts payable and accounts receivable are the two sides of a transaction, yet they differ inherently from each other. The prominent differences between these terms is highlighted below:
- Accounts payable and receivable are inherently different as they refer to the amount liable to be paid & received respectively.
- Accounts payable is also referred as liabilities while accounts receivable is referred as assets.
- Accounts payable are a company’s debt that have to be paid within a duration, in order to avoid default.
- Accounts receivable and accounts payable keep the track of the amount which a company is liable to receive and pay respectively.
- In a company’s balance sheet, accounts receivable is recorded as an asset while accounts payable is recorded as liabilities.
In spite of all these differences between them, the procedure for recording both the transactions are almost similar. However, the procedure for recording accounts receivable is more complex as compared to accounts payable.
The accounts receivable & payable have been established as per the financial conditions, industry policies & standards in order to track the records of amounts to be received or paid. Apart from maintaining the records in-house, one can always outsource accounts payable services & accounts receivable services.