Account Payable Vs Account Receivable

Account payable and account receivables both are the parts of balance sheet. Both are need for finding the correct information of financial position of any organisation. But there are basic difference between both which we can explain in following list.

1. Liability or Asset 

Account payable is the liability amount which we have to pay our creditors. We have bought goods from our creditor on credit. Now, we have to pay this amount as per the terms. Before paying, this amount will be called account payable and will show in current liability in balance sheet.

Account receivable is our asset because we have sold goods on credit. We have to take money from debtors.

2. Example 

Ram has bought goods of Rs. 20,000  from Sham on credit. This amount should be paid by Ram within 15 days. So, Ram will show Rs. 20,000 as his account payable because he has to pay to Sham.

Sham has Sold goods of Rs. 20,000 to Ram on credit. This amount should be received by Sham within 15 days. So, Sham will show Rs. 20,000 as his account receivable because he has to receive from Ram.

3. Provision 

If we have to pay fast money to our creditors, we will get discount. So, we can make the provision of discount received on account payable.

There are two type of provisions of losses, we can make on account receivable. One is provision for discount allowed to account receivable and second is provision for bad debt.

4. Short Name 

We say account payable A/P

We say account receivable A/R

5. Effect on Cash Balance 

When we pay account payable, our cash balance will decrease.

When we pay account receivables, our cash balance will increase.