Account Payable is the money that a company owes to its suppliers for goods or services purchased on credit. It is recorded and tracked as an asset until it is paid off in full.
Accounts Receivable, on the other hand, is the money owed to a company from customers who purchased goods or services on credit. It is recorded and tracked as a liability until it is collected from the customer.
At first glance, Account Payable and Account Receivable may seem similar. But the key difference lies in the orientation: Account Payable applies when a company buys something and has to pay out cash to its supplier – while Account Receivable arises when a company sells something and will receive cash from the customer. Therefore, keeping track of Accounts Payable and Accounts Receivable is crucial to any successful business!