Understanding the difference between accounts payable vs accounts receivable is crucial for managing a business’s finances. Here’s a breakdown:
Accounts Payable (AP)
- Represents the short-term obligations incurred by a company when it purchases goods or services on credit.
- It’s a liability on the balance sheet, showing what the company owes to others.
- Examples: Invoices received for raw materials, office supplies, or utilities.
Accounts Receivable (AR)
- Represents the money owed to a company by its customers for goods or services already delivered or used.
- It’s an asset on the balance sheet, showing what others owe to the company.
- Examples: Invoices issued to customers for products sold or services rendered.
Essentially, accounts payable vs accounts receivable reflect the opposite sides of credit transactions. AP tracks outgoing payments, while AR tracks incoming payments. Both are vital for maintaining a healthy cash flow and financial stability
