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February 21, 2007

What is the difference between accounts payable and accounts receivable?

Accounts payable are amounts a company owes because it purchased goods or services on credit from a supplier or vendor. Accounts receivable are amounts a company has a right to collect because it sold goods or services on credit to a customer. Accounts payable are liabilities. Accounts receivable are assets.

Let’s assume that Company A sells merchandise to Company B on credit. (Perhaps the invoice states that the amount is due in 30 days.) Company A will record a sale and will also record an account receivable. Company B will record the purchase (perhaps as inventory) and will also record an account payable.

Our example reminds me of an old saying, “There are two sides to every transaction.” In accounting we also expect symmetry: Company A has a sale and a receivable, Company B has a purchase and a payable.

the accounting coach

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

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.



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Comments

3 Responses to “What is the difference between accounts payable and accounts receivable?”

  1. mahmoud on August 18th, 2008 10:29 am

    what is differance between Accounts receivableAND Accounts receivableLOAN?

  2. umer kheyam on October 18th, 2008 12:39 pm

    Accounts payable are amounts a company owes because it purchased goods or services on credit from a supplier or vendor. Accounts receivable are amounts a company has a right to collect because it sold goods or services on credit to a customer. Accounts payable are liabilities. Accounts receivable are assets.

    Let’s assume that Company A sells merchandise to Company B on credit. (Perhaps the invoice states that the amount is due in 30 days.) Company A will record a sale and will also record an account receivable. Company B will record the purchase (perhaps as inventory) and will also record an account payable.

    Our example reminds me of an old saying, “There are two sides to every transaction.” In accounting we also expect symmetry: Company A has a sale and a receivable, Company B has a purchase and a payable.

  3. umer kheyam on October 18th, 2008 12:41 pm

    What is the difference between loan and profit?

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