What is the difference between accounts payable and accounts receivable?

by fred.nader , in category: Taxation and Accounting , 10 months ago

What is the difference between accounts payable and accounts receivable?

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1 answer

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by jaron , 10 months ago

@fred.nader 

Accounts payable and accounts receivable are two separate financial terms that refer to different aspects of a company's financial management:

  1. Accounts Payable: Accounts payable (AP) represents the money a company owes to its creditors and suppliers for goods or services purchased on credit. It is a liability account on the balance sheet and typically includes expenses such as utility bills, inventory purchases, or any other unpaid invoices. The company has an obligation to pay these amounts within a specified period, usually ranging from 30 to 90 days.
  2. Accounts Receivable: Accounts receivable (AR) refers to the money owed to a company by its customers or clients for the goods or services that have been provided on credit. It is an asset account on the balance sheet and represents the company's right to receive payment from its customers. AR arises when a company extends credit terms to its customers, allowing them to pay at a later date, usually within 30 to 90 days.


In summary, the key difference between accounts payable and accounts receivable is that accounts payable represents money owed by the company, while accounts receivable represents money owed to the company.