In terms of accounting, you’ll hear the words “accounts payable” and “accounts receivable” quite often. But what do they mean? What are the differences between the two? Our bookkeepers and accountants at All About Businesses are here to provide a bit of clarity, helping you better understand your finances.
Accounts payable and receivable refer to the payments flowing in and out of your account. Accounts payable are the payments that must be paid to outside vendors or third-party suppliers. They can be thought of as money leaving your account. Accounts payable expenses are typically services that another company supplies to your business. They are viewed as a liability because it is the money that you owe to another. Failure to keep track of your accounts payable can lead to late fees and a loss of power, leasing and even your business itself. It’s important to have a great system for keeping track of your amounts owed, or to have a professional bookkeeper who can do it for you.
Common Examples of Accounts Payable:
- Raw Materials- cleaning supplies, lumber, minerals, etc.
- Products & Equipment
The exact opposite of accounts payable, accounts receivable refers to the money other vendors owe you. They’re charted as a part of your income and can be one of the ways that your company makes a profit. Similarly to accounts payable, it’s critical to keep on top of these amounts as well. Although you don’t have to worry about paying a bill or meeting a timeline, failure to collect the money that you’re owed can lead to your company losing money over time. Keep a steady inflow of cash by closely monitoring which vendors owe you, keeping the exact amounts of cash in mind.
Examples of Accounts Receivable
- Sales to customers
- A bill from a client
- Unpaid invoices
When it comes to managing these accounts, stay on top by hiring a professional bookkeeper or accountant! Organizing records and paying attention to the details isn’t everyone’s strong suit. We understand that at All About Businesses, which is why we’re dedicated to being a team of online bookkeepers who can help you run your business’s finances better. If interested in hiring us to manage your company’s books, contact us today and we’ll walk you through your possible options.