The difference between accounts receivable and accounts payable

Accounts receivable are the amounts owed to a company by its customers, while accounts payable are the amounts that a company owes to its suppliers. The amounts of accounts receivable and payable are routinely compared as part of a liquidity analysis, to see if there are enough funds coming in from receivables to pay for the outstanding payables. This comparison is most commonly made with the current ratio, though the quick ratio may also be used.

Other differences between accounts receivable and payable are as follows:

Many payables are required in order to create products for sale, which may then result in receivables. For example, a distributor may buy a washing machine from a manufacturer, which creates an account payable to the manufacturer. The distributor then sells the washing machine to a customer on credit, which results in an account receivable from the customer. Thus, payables are typically required in order to produce receivables.

Related Courses

Bookkeeper Education Bundle 
Bookkeeping Guidebook 
Payables Management