Accounts Receivable vs Accounts Payable

by Tarig
(Hurst, Texas, United States)

Q: What's the difference between Accounts Receivable vs. Accounts Payable?

A: Thanks for your question Tarig.

Let's see what these two terms are and how we treat each of them in accounting.

Accounts Receivable

Accounts Receivable is an account containing all amounts owing to us.

It is all the amounts we expect to receive. In other words, our debtors.

These are our customers, people that we have provided services or products to, but who haven't paid us yet.

Accounts receivable is an asset account.

And just like all asset accounts, it should have a debit balance:

Since we expect to receive payment from our debtors within a period less than a year, it is recognized as a current asset (short-term) on our balance sheet.

Accounts Payable

Accounts Payable is an account containing all amounts that we owe to others.

It is all the amounts we expect to pay our creditors in the future. In other words, these are our suppliers, people who have supplied us with goods and services but who we haven't paid yet.

Accounts Payable is thus a liability account (debt).

And just like all liability accounts, it should have a credit balance:

Since we expect to pay these debts off within a period less than a year, it is recognized as a current liability (short-term) on our balance sheet.

Does that makes sense? Are there any other differences with accounts receivable vs. accounts payable that I left out? Add your say in a comment further below.

Best,
Michael Celender
Founder of Accounting Basics for Students


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