Accounts Payable vs Accounts Receivable: What’s the Difference?
What is Accounts Payable (AP)?
How to Record Accounts Payable?
- Accrual Accounting: Here, the finance team will record all the unpaid expenses and act as the placeholder for cash events.
- Cash-basis Accounting: In this method, a company records the expenses when it is actually paid to the suppliers.
What is Accounts Receivable (AR)?
How to record Accounts Receivable?
- Accounts receivable turnover ratio: It measures how smoothly a company converts its accounts receivable into cash in a limited period of time.
- Current ratio: This measures liquidity, i.e. whether a company can pay its short-term obligations with liquid assets or cash within a year.
- Days sales outstanding (DSO): It represents how long the customers take to pay the company for their services or products.
Key differences between Accounts Payable and Accounts Receivable
Accounts
Payable (AP) |
Accounts
Receivable (AR) |
AP is considered as a liability. |
AR is considered as
an asset. |
It is the Client’s record. |
It is the Vendor’s
record. |
It is the money to be paid. |
It is the money to
be received. |
It is recognized as a liability until paid. |
It is recognized as
an income unless given out. |
Auditors mostly look for quantity errors or
unethical behaviors of the vendor. |
Auditors mostly
track customer accounts whose dues have passed beyond 120 days. |