Differences Between Accounts Payable and Receivable

By Annapoorna

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Updated on: Jun 26th, 2025

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4 min read

Accounts payable and accounts receivable are two fundamental concepts that governs   business’s financial operations. Understanding these two concepts is crucial  for businesses that wish to gain insights into their accounting process.

Lenders , investors and other stakeholders often analyse the accounts payable and accounts receivable equation to learn and access a business’s financial condition. Businesses can achieve success and build positive relations with their customers and suppliers when maintaining a healthy equilibrium between receivable (related to revenues) and payable (related to expenditures).

This article explains all about accounts payable and accounts receivable, including examples, how to record them, similarities and differences.

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 signs 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: How to Record Accounts Payable 

A popular clothing brand, Infinity Fashion, ordered 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 as below:

Date

Particulars

Debit (Dr)

Credit (Cr)

 

12-May

Inventory (T-shirts)

Rs 1,20,000

 

Accounts Payable ( Lush Clothing )

 

Rs 1,20,000

Later, on July 11 it initiates payment of Rs.1,20,000 to Lush Clothing’s bank account. Here’s the entry for that transaction:.

Date

Particulars

Debit (Dr)

Credit (Cr)

 

 

11-July

Accounts Payable ( Lush Clothing )

Rs 1,20,000

 

Bank account

 

Rs 1,20,000

What is Accounts Receivable?

Accounts Receivable (AR) is considered as current assets. It 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: How to Record Accounts Receivable?

Lush Clothing identifies Infinity Fashion as a valuable customer and offers them a net-90 days term 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.

Below is the journal for the transaction: 

 

Date

Particulars

Debit (Dr)

Credit(Cr)

12 May

Accounts Receivable (Infinity Fashion)

1,00,000

 

Sales (Revenue)

 

1,00,000

Similarities Between Accounts Payable and Accounts Receivable

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.

Major Difference Between Accounts Payable and Receivable

The differences between accounts payable and accounts receivable can be as follows-

Accounts Payable

Accounts Receivable

Funds to be disbursed

Funds to be received

Recorded as current liabilities on the balance sheet

Recorded as existing assets on the balance sheet

Client’s record

Vendor’s record

Identified as a liability until paid

Identified as an asset until received 

Impacts cash outflow

Impacts cash inflow

Accounts Payable vs Accounts Receivable: Which is Easier?

Accounts receivable is mostly considered easier to handle than accounts payable. 

Accounts receivable involves tracking money owed to a company by customers, which is relatively straightforward. In contrast, accounts payable involves managing the company's debts to suppliers and creditors, which can be more complex. 

It requires careful record-keeping, timely payments, and negotiation skills to maintain good vendor relationships. While both are essential for financial health, accounts payable often involves more variables, deadlines, and potential consequences for late payments, making it comparatively more challenging to manage effectively.

Frequently Asked Questions

What is the difference between accounts receivable and accounts payable?

Accounts Receivable (AR) as a current asset of the balance sheet, refers to money due to your business from customers.

Accounts Payable (AP) as a current Liability in the balance sheet, refers to money your business owes to suppliers.

Are accounts payable and accounts receivable the same thing?

  No, accounts payable and accounts receivable are not the same. 

Can accounts payable and accounts receivable be handled by the same person?

Yes, but AP and AR should ideally be handled by separate individuals to ensure internal controls and reduce fraud risk. Different people handling these functions provide checks and balances and improve financial controls.

Can a company have both AP and AR?

Yes, usually, a company will  have both Accounts Payable (AP) and Accounts Receivable (AR)

Who sends invoices, AP or AR?

Accounts Receivable (AR) sends invoices whereas AP receives invoices from suppliers/ vendors. AR is the department responsible for managing money owed to the company by its customers, and this involves sending invoices to customers.

Which is better, higher AP or higher AR?

Neither higher AP nor higher AR is fundamentally better; it completely depends on the business context. Higher AR indicates more money owed to the company, which is good for cash inflow but may indicate collection risks. Higher AP means more money owed to suppliers, which could reflect effective use of credit but also liquidity risk if excessive. The key is maintaining a healthy balance of AP and AR to support cash flow and operational needs.

About the Author
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Annapoorna

Assistant Manager - Content
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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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