In this video you are going to learn the difference between account payable and account receivable let's start the video in accounting we often get confused between account payable and accounts receivable so it is important to differentiate.
Between accounts payable versus accounts receivable because one of them is a liability account and the other is an asset account mixing up these two can cause a lack of balance in your accounting equation which carries over into your basic financial statements.
What are accounts payable accounts payable are current liability accounts that keep track of money that you owe to any third party the third parties can be banks companies or even someone from who you borrowed money.
One common example of accounts payable is purchases made for goods or services from other companies depending on the terms of repayment the amounts are typically due immediately or within a short period now come to what are accounts receivable accounts receivable is a current asset account that keeps track of money that.
Third parties owe to you again these third parties can be banks companies or even people who borrowed money from you one common example is the amount owed to you for goods sold or services your company provides to generate revenue accounts payable leads to a decrease in.
Cash flow while accounts receivables lead to an increase in cash flow accounts payable is simply the total cost of purchases whereas accounts receivables are determined as total sales minus returns and all the allowances and the discount given to the customers.
For account payables the accountability lies on the business while for accounts receivable accountability lies on debtors an increase in accounts payable represents a cash inflow from the delayed payments to suppliers or vendors whereas a decrease in accounts payable reflects an outflow of cash as the.
Outstanding credit balance of customers is paid off in cash payments on the other hand an increase in accounts receivable represents a cash outflow because more customers have paid on credit so there is less cash on hand for the company whereas a decrease in accounts.
Receivable reflects an inflow of cash as more cash was collected from sales that were previously paid for on credit if you want to read in details and download the pdf go through the link in the description if you find the video helpful give us a like share the video and don't forget to subscribe to education leaves.