Learning Objective:
What is the difference between trade payable and accounts payable?
Definitions and Meanings:
Trade Payable:
A Trade Payable can be referred to as an amount billed to a company by its suppliers for goods and services that are delivered to the company, in an ordinary course of the business.
These billed amounts are basically entered as accounts payable in the company’s records. They are always classified as Current Liabilities, because of the fact that they are payable across the span of one year.
Trade Payables, therefore, include the total amount for creditors, as well as bills payable for the given company.
Accounts Payable:
The Accounts Payable account is an account in General Ledger, which used to record the purchase of goods and services.
It is a liability account, and therefore, has a credit balance.
The accounts payable account is mainly used for recording the purchase of goods and services, and hence it has relevant entries to show the incoming of goods and payments to creditors.
The double entry for noting accounts payable is that the Accounts Payable is credited (since it is a liability), the respective account will be debited.
In the same manner, when the amount is settled for a creditor, the Accounts Payable account is debited, and Cash is subsequently credited.
Accounts Payable includes amounts for purchase of goods and services and other amounts that are accrued by the company.
Accounts Payable are also recorded as a Current Liability, primarily because of the fact that they have to be settled within one year. They are recorded in the general ledger by credit. This is because since this is a liability account, it is credit in nature.
On the other hand, it can be seen that when it is supposed to be recorded, Accounts Payable is supposed to be credited, when the invoice or the bill is received.
When the respective debit entry for this transaction is a debit offset to an expense account for the services availed on credit.
After the bill has been paid, the accountant debits account payable to subsequently decrease the liability balance.
Conclusion:
Despite the fact that accounts payable and trade payables are terms that are used interchangeably, yet there are slightly different and apply to different situations.
As far as Trade Payables are concerned, it can be seen that they mainly constitute of the money a company has to return to its suppliers for goods and services that have been purchased for resale.
However, on the other hand, Accounts Payable can be seen as an umbrella term, that includes all the short term debts and obligations that the company has to honor across the span of one year.
However, the similarity between the two accounts is that they are both Current Liability Accounts, and therefore, they are credit in nature.
As they increase in time, this is an indication of the fact that the company is purchasing an additional number of goods and services on credit.
On the other hand, if the balance decreases over time, this shows that the company is repaying its debt in a shorter period of time.
