Differences Between Accounts Payable and Receivable

By Annapoorna


Updated on: Apr 21st, 2022


3 min read

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Accounts payable vs receivable are two opposite principles that dictate the operations of a business. Understanding these two concepts is imperative for businesses that wish to gain insights into their accounting process. 

Lenders and potential investors analyse the accounts payable and receivable equation to learn about a business’s financial condition. Businesses can only achieve success and build positive relations with their customers and suppliers when maintaining a healthy equilibrium between revenues and expenditures.

What are Accounts Payable?

Accounts payable (AP), also labelled as current liabilities, refer to the funds that a business is yet to pay to its suppliers or creditors. AP is usually recorded upon receipt of an invoice containing mutually agreed payment terms. Upon receiving a bill for goods and/or services, the finance team records it as a journal entry and posts it to the general ledger as an expense. 

The balance sheet indicates the total amount of accounts payable without listing individual items. The accounting team marks the expense as paid once an authorised approver sign the expense and the payment is initiated according to the contract’s payment terms, such as net-30 days or net-60 days.

AP Example

A popular clothing brand, Infinity Fashion, orders 600 dyed t-shirts worth Rs.1,20,000 from its wholesale supplier, Lush Clothing, which then sent an invoice on May 12 with net-60 payment terms and no early payment discounts. Infinity Fashion’s bookkeeper creates an account payable journal entry and initiates payment of Rs.1,20,000 to Lush Clothing’s bank account on July 11 by debiting Rs.1,20,000 from Infinity Fashion’s inventory asset account.

What is Accounts Receivable?

Accounts Receivable (AR), also labelled as current assets, refers to the funds received from customers against invoiced products and/or services.

After providing customers with products and/or services, businesses usually issue bills based on mutually agreeable payment terms. The AR team is responsible for invoicing the customers and recording the invoiced amount as accounts receivable and payment terms.

AR Example

Lush Clothing identifies Infinity Fashion as a valuable customer and offers them a net-90 days term with a 50% prepayment on all new purchase orders above Rs.1,00,000. When Infinity Fashion accepts the offer and makes an order worth Rs.1,00,000, Lush Clothing ships the order and records Rs.1,00,000 as an asset in accounts receivable, expecting the full payment of the invoice within 90 days (mutually agreed payment term) of the receipt of the t-shirts.

What Do Accounts Payable and Receivable Have in Common?

On a transactional level, each invoice is payable to one party and receivable to the other. Both accounts payable and receivable have the following commonalities:

  • Both are recorded in a company’s general ledger
  • Both provide an overall picture of the company’s financial condition
  • Both are crucial for optimising accounting practices, generating improved reporting, managing cash flow, and boosting working capital.

Accounts Payable vs Receivable

Accounts PayableAccounts Receivable
Funds to be disbursedFunds to be received
Documented as current liabilities on the balance sheetDocumented as existing assets on the balance sheet
Client’s recordVendor’s record
Identified as a liability until paidIdentified as an income until removed
Results in cash outflowResults in cash inflow
About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more


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