Accounts receivable and accounts payable are the terms used in the context of accountancy, these two happen when credit transactions are done either by the customer or by the company. Given below are the differences between account receivable and account payable –
- Accounts receivable happens when customers purchase goods from company on credit hence company owes money from customers whereas in case of accounts payable company purchase goods on credit from others and hence it is the company which has to pay money to others.
- Account receivable will not have any effect on current asset in the balance sheet of the company because on the one hand it results in decrease in raw material or stock which company has sold to its customers and on the other hand it results in increase in bill receivable, while in case of account payable it results in increase in current or fixed asset on the asset side of balance sheet while on the other hand it results in increase in current liability of the company.
- Account receivable can be better understood with the help of an example, suppose a computer dealer sells 10 computers at average cost of $500 to customer on credit where customer promises to pay within 1 month then in the books of computer dealer account receivable will be shown as $5000. Similarly in case of accounts payable suppose the same computer dealer purchases computer parts worth $2000 from others manufacturers on credit then in the books of computer dealer account payable will be shown as $2000.
- Accounts receivable are shown under current assets in the balance sheet of the company while accounts payable is shown under current liabilities in the balance sheet of the company.
- While making journal entry for account receivable, account receivable is debited and sales account is credited, while in case of account payable purchase account is debited and account payable account is credited.
As one can see from the above that there are many differences between the two and hence one should know the differences in order to understand which transaction will result in account receivable and which transaction will result in account payable.