Main Differences between Accounts Payable and Accounts Receivables

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accounts payable

Most people get confused between accounts payable (AP) and accounts receivables (AR). These two terms have an entirely different meaning. If you are an accountant professional you will understand that accounts receivable and accounts payable are different for many reasons. The accounts payable and accounts receivables are entirely different from each other in terms of legal and accounting perspective.

The accounts receivable can be described as the amount that customers have to pay to the company after purchasing their goods or using their services. On the other hand, accounts receivables can be described as the amount that the company has to pay to the suppliers, employees, or others.

Here, we are going to discuss various points that will help in determining the difference between Accounts Payable and Accounts Receivables:  

1) Legal Perspective

Based on the legal perspective, the accounts receivable can be described as the total amount that the company needs to pay to other entities. On the other hand, the accounts payable can be described as the amount that the company has to receive from various other entities.  

In case the company fails to receive the payment before the due date then that company reserves the right to perform legal action against those entities. Similarly, if the company fails to make payment to suppliers, customers, or other entities at the right time then they reserve the right to take legal action against the company. There are various accounts receivable and payable software available in the market that helps in maintaining the record.

2) Accounting Perspective

Based on the accounting perspective, the accounts receivable can be described as the current asset and they are recorded in the balance sheet of the company. On the other hand, accounts payable are the current liabilities for the company. The accounts payable are also recorded on the balance sheet of the company as current liabilities. With the increase in accounts receivables, entity current assets increase. On the other hand, a decrease in accounts receivables will lead to a decrease in current assets.

If we talk about the accounts payable, then an increase or decrease in accounts payable will affect the financial statement of the company differently. With the increase in accounts payable of the company, the current liabilities of the company will increase as well. For example, if customers purchase too many goods or services, then the current liabilities of the company will also increase. With the decrease in accounts payable, the current assets of the company will also decrease. For instance, if the company has to make payments to suppliers, then the asset of the company will decrease by the same amount. The accounts payable software can help in maintaining a good cash position by maintaining the optimum record.

3) Accounting Records

The record of accounts payable and accounts receivables is maintained on the balance sheet of the company in different ways. There are different records maintained for the accounts receivables and accounts payable. In earlier times, the record of the accounting system is maintained on registers. It is a tedious job and prone to errors. Nowadays, the accounting records are maintained on automating record maintaining software. The accounts receivable process automation software helps in automatically maintaining the records without any problem.

4) Impact

The impact of accounts receivable and account payable is entirely different. The accounts receivables help in increasing the cash inflow of the company. On the other hand, the accounts payable leads to an increase in cash outflow. It is imperative to maintain the balance between cash inflow and cash outflow. You should keep purchasing raw material from the supplier to carry on the manufacturing and also pay salaries to the employees at the right time. Similarly, you should try to collect the accounts receivables at the right time from your customers. The accounts receivable management software helps to collect the payment at right time.

5) Movement Of Money

The accounts payable and accounts receivables, both results in the movement of the money. When it comes to accounts receivables, the company has to collect money from the customers. On the other hand, the accounts payables result in the movement of money in an outward direction. Accounts receivables and accounts payables both result in the movement of money but in a different direction.

6) Responsibilities

When we talk about the accounts receivables, the responsibility of making the payment is dependent on the debtors. On the other hand, the responsibility of accounts payable is dependent on the company. The company has to pay the amount to suppliers, employees, and various utility bills. The account payables are comprised of the creditors and bills payables and the accounts receivables are comprised of the debtors and bills receivables.

Final Words

The accounts receivable is completely different from the accounts payable. A few basic differences are described above. Both of these terms play a vital role in any business. Accounts receivables and accounts payables are two important terms for the company. Therefore, it is a good idea to invest in one of the best AR automation tools. They help in maintaining the good cash position of the company. Therefore, it is very important to pay complete attention to both of these terms.