Channel: Edspira

Category: Education

Tags: accounts receivableaccounting basicsaccounts payablewhat is accounts payableaccounts receivable and accounts payableaccounts payable and accounts receivablebasic accountingaccounts receivable vs accounts payableaccounts payable vs accounts receivable

Description: It’s common for people to confuse accounts receivable and accounts payable. However, accounts receivable and accounts payable are actually opposites. Here are some differences: (1) accounts receivable represent amounts OWED TO the company (usually credit sales, but could be nontrade receivables like loans, tax refunds, or interest). Accounts payable are amounts OWED BY the company for purchases of goods or services on credit. (2) accounts receivable result in a cash inflow, whereas accounts payable result in a cash outflow. (3) accounts receivable are typically categorized as a current asset, whereas accounts payable are categorized as a current liability. (4) accounts receivable is offset by an allowance for doubtful accounts, whereas accounts payable has no offset. Although accounts receivable and accounts payable are two different things, they are related. If we think about a retailer, accounts payable are generated to acquire inventory. If the company then sells the inventory on credit, this results in accounts receivable. Thus, payables are used to obtain inventory which is then sold to create receivables. Moreover, one company’s accounts payable is another company’s accounts receivable. If Boeing purchases jet engines on credit from General Electric, this creates (1) an accounts payable for Boeing and (2) an accounts receivable for General Electric. — Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education accessible to all people. — SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • A 44-PAGE GUIDE TO U.S. TAXATION • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • MANY MORE FREE PDF GUIDES * eepurl.com/dIaa5z — GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT * edspira.thinkific.com — LISTEN TO THE SCHEME PODCAST * Apple Podcasts: podcasts.apple.com/us/podcast/scheme/id1522352725 * Spotify: open.spotify.com/show/4WaNTqVFxISHlgcSWNT1kc * Website: edspira.com/podcast-2 — GET TAX TIPS ON TIKTOK * tiktok.com/@prof_mclaughlin — ACCESS INDEX OF VIDEOS * edspira.com/index — CONNECT WITH EDSPIRA * Facebook: facebook.com/Edspira * Instagram: instagram.com/edspiradotcom * LinkedIn: linkedin.com/company/edspira — CONNECT WITH MICHAEL * Twitter: twitter.com/Prof_McLaughlin * LinkedIn: linkedin.com/in/prof-michael-mclaughlin — ABOUT EDSPIRA AND ITS CREATOR * edspira.com/about