If you are into business, you may be aware of the terms accounts payable (AP) and accounts receivable (AR). If not then, No worries! This article will provide a detailed guide on payable accounting, what they mean, why they are crucial and how they differ from accounts receivable.
When you purchase goods and services from the vendor, there must be some data to keep track of the payment and outstanding amount. Especially when you want to create credibility, payable accounting processes the due payments in time and keeps track of the outstanding invoice amount.
Accounts payable are the specific ledger accounts that represent an organization’s obligation toward suppliers, vendors, and creditors against the purchase of goods or services on credit.
In layman’s language, a business often allows its customer to purchase its goods and service on credit and pay the outstanding amount later. It helps the customer to avoid the hassles of immediate payment. The value of goods/services is recorded as AP. For example, you purchase the material of $20,000 from the supplier on a credit period of 30 days. The amount of $20,000 is recorded as accounts payable. It represents the amount you owe to the supplier for the goods/service for which no payments are done.
The AP depart process all the accounts payable. There is a systematic procedure to release payments to the supplier and creditors. Thus, it streamlines the processing of payables and keeps everything transparent.
Payable processing includes receipt of the invoice from the supplier, verification of the invoice to track quantity payment, pricing, and other details, updating and recording all the invoices, and finally making payments after reviewing necessary documents.
Account receivable is the sum of money that your customer owes to you for the goods and services purchased on credit that payment is due. Let’s say your business has given your customer goods worth $10,000 on credit allowing a certain time to pay for it. So, the credit of $10,000 will be recorded as Accounts Receivables.
On the other hand, Accounts Payable represent the amount due to the suppliers of the business for the purchase of the product or service on credit. Now assume you purchase $10,000 worth of material from the vendor and the vendor allows you some time to pay. The amount of $10,000 will be recorded as accounts payable.
So, AR represents the outstanding amount receivable from the customers of the business. AP represents the outstanding amount payable to the suppliers/vendors.
Final Words:
Accounts payable is an important business process. It streamlines the financial process of the business. Having an AP department would add up to your cost while there cannot be complete automation as you still need a human touch. Hence outsourcing accounts payable is the best option. You work with professional AP experts like us who will handle AP while working with the latest soft wares and technology.
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