When a company purchases goods or services on credit, it will increase its accounts payable (a current liability). When a company sells goods or services on credit, it will increase its accounts receivable (a current asset).

Just as one company’s purchase is another company’s sale, the accounts payable of one company will be the accounts receivable of another company. Some accountants refer to this as symmetry.

To illustrate this, let’s assume that Max Corporation receives $5,000 of goods it ordered from Super Supply Company on credit. This transaction will result in Max recording a $5,000 accounts payable (and a purchase), and Super Supply recording a $5,000 accounts receivable (and a sale).

Learn more about the Balance Sheet.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the creator of the AccountingCoach Pro which has been praised for its ability to simplify accounting in a way that anybody can understand.

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