Accounts receivable and accounts payable are different for many reasons. From a legal perspective to an accounting perspective.
Basically, accounts receivable are the amounts that other entities people owe the company as the result of the purchase of goods as well as rendering services.
However, accounts payable are what the company owe other entities and people after the company purchase goods or rendering services from them.
1) Legal perspective:
From a legal perspective, accounts receivable, are the amount that the company needs to get from other entities.
In case the company does not receive the payments at the agreed period, the company has the right to perform legal action on those entities that do not make payments.
In contrast, if the company does not make payments to suppliers that it purchase goods or services from, the company will face legal action from suppliers.
2) Accounting perspective:
From the accounting perspective, accounts receivable are the current assets and they are recording in the balance sheet of company financial statements. Account receivable is class current assets.
However, accounts payable are the current liabilities and they are also recording as current liabilities in the balance sheet as well.
The increasing of account receivable makes entity current assets increase however the decrease of account receivable is not making the current assets decrease if they were because of collection.
However, if the decrease of accounts receivable is because management has written off, then these decrease will make the company current assets decrease.
The increasing accounts payable will affect the entity’s financial statements differently.
For example, if the entity purchase of goods or rendering of services, the account payable will increase. In other words, current liabilities will increase as well.
The decrease in accounts payable will make the current assets of the company decrease. For example, if the entity makes payment to suppliers, then the entity assets (cash) will decrease by the same amount.
3) Accounting Records:
1) Accounts Receivable:
If the accounts receivable is increasing,
Debit Account Receivable ( in the balance sheet)
Credit Sales Revenue ( in the income statement)
If the account receivable is decreasing,
Credit account Receivable ( in the balance sheet)
Debit cash or bank ( in the balance sheet)
This record applies only if the company collected accounts receivable by cash or bank.
If the decrease of accounts receivable is because of management has written off,
Credit accounts receivable ( in balance sheet)
Debit expenses ( in income statement)
2) Accounts Payable:
If the accounts payable are increasing,
Credit account payable ( in balance sheet)
Debit assets ( in balance sheet) or expenses ( in income statement)
If the account payable are decreasing,
Debit account payable ( in balance sheet)
Credit cash or bank ( in balance sheet)
These are the difference between accounts receivable and accounts payable.
