Updated: Feb 19
Every account is Payable for one party and Receivable for the other.
Accounts Payable (AP, Liability)
Debts your company has towards suppliers and other creditors.
This does not include certain expenses such as payroll or mortgages, it does however include long-term debt.
When an authorized person approves the expense, payment is issued, according to the contract that was agreed upon by both parties. Then it is recorded as paid by both companies.
An AP team makes sure expenses are paid on time and all information is accurate. Reducing the possibility of mistakes or fraud to occur.
Accounts Receivable (AR, Asset)
It is the money that is owed to your business, for which invoices have been issued.
These funds are considered an asset to your business.
The payments for agreed upon contracts have time constraints, for example “net 30”, which means the payment will be complete within 30 days. The deal may also require for part of the funds up front.
If the payment is complete the account is no longer receivable, once the AR team records it as deposit.
AP generally corresponds to suppliers a business has to pay, whilst AR mostly refers to customers and how they would pay a business.
Businesses need this process to be automated, in order to save time, improve control and increase productivity.