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What is the difference between accounts payable and accounts receivable?

I just started doing Accounting for my year 11. I did business in year 8 and 9 but we didn't really do much accounting, we focused more on how business are run, managers decisions and some basic accounting. I am finding it quite difficult this year!

My teacher sometimes uses Accounts Payable and sometimes uses Accounts Receivable when we are doing journals.

What is the difference between them? How do I know which one to use and when?
Posted in Accounting, asked by lefe, 5 years ago. 1244 hits.

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Accounts payable and accounts receivable are both accounts used when goods or services are bought and sold. What they have in common is that they both relate to transactions which are made on credit i.e. the payment for the good or services is delayed. The difference is actually quite clear from there titles - one is money to be paid (payable) and the other is money to be received (receivable).

Accounts payable is the account used when a business owes money to a supplier or another business for goods or services they have purchased from that business but have not yet paid for. It is a liability. Accounts receivable is the account used when a business sells goods or services to a customer who has not yet paid and therefore owes the business the money. It is an asset.

An example below might be helpful:

1.)
Company A is a wholesaler selling laptop computers to various retailers. They sell $15,000 worth of stock to Retailer B on 15 April 2013 (cost price of goods is 8,000). The sale is made on credit with installments to be paid by the retailer over the next 3 months. (ignoring the effects of GST)

In the records of Company A, Retailer B owes $15,000 for inventories purchased. The money will be received over the next 3 months, therefore accounts receivable is the correct account to use. The journal would be as follows:

Accounts receivable (dr) 15,000 Sales (cr) 15,000

Cost of goods sold (dr) 8,000 Inventories (cr) 8,000

2.)
Company C purchases stationery from Company D on credit. The total value of the stationery amounts to $4,300.

In the records of Company C, they owe Company D $4,300 for the purchase. The money has to be paid, therefore accounts payable is the correct account to use. The journal would be as follows:

Stationery (dr) 4,300 Accounts payable (cr) 4,300

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5 years ago
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