Differentiating Between A Company’s Accounts Receivable And Accounts Payable

differentiating-between-a-companys-accounts-receivable-and-accounts-payable

If you do not know much about the accounts of a company, you need to study some key factors before you start off with your business or take your accounting exam.

Payables and receivables are general accounting terms. The primary difference between the two is that payables are what you have to pay creditors, whereas receivables are what buyers owe you. All businesses operate under these two categories, making up the essential part of your balance sheet. All financial analysts record the invoices and make retail payments based on the payables and receivables. Here are some key features of the two accounts to help you distinguish between them.

Basics

Accounts receivable is the money others owe you. This is the revenue. Your buyers must pay this amount within a mutually agreed time period. As this process only involves payments being made to you, it does not vary.

Payables have a set of different areas to observe. It is divided into wages payable, notes payable, accounts payable, bonds payable and interest payable. Businesses are composed of all these payables. These payables portray the purchases you make through credit.

Time

Every payable or receivable has a time frame associated with it. Receivables are considered short term. Sometimes, the buyer and the seller may mutually agree on a time limit in which the payment has to be made. Usually, receivables are due within a month from the date the invoice is issued. If the buyer exceeds the limit over 30 days, a late fee is added which may be applicable for between 60 and 90 days.

Receivables or payables can be short term or long term. Any debts that need to be paid within a year are current liabilities. Moreover, bonds payable and notes payable are long term and due after a year or more.

Cash

A company’s cash flow is made on the basis of receivables and payables. Cash inflow is the amount that comes in and the amount that goes out also affects your accounts. The stronger your cash flows, the better your company will function.

Approach to revenue

You will always want to avail your revenue and profits earlier. You would want to minimize your cost of payment. Choose a unique approach. Why not offer a discount of two to three percent? It will help you safeguard your transactions and prompt faster responses to your accounts receivable. You may have to call or remind them, but it is an easy way to ensure that you get your cash as quickly as possible.

Extend your knowledge by understanding the basics. Utilize the best accounting services to help your business and ace your financial accounting exam.

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