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Accounts Receivable vs Accounts Payable: What's the Difference?

Businesses need to track two types of accounts when it comes to money owed to them or money they owe. These are accounts receivable and accounts payable. Here's a look at the key differences between the two:

What is Accounts Receivable?

Accounts receivable is money that is owed to a business by its customers. This could be in the form of invoices for goods or services that have been delivered but not yet paid for. It could also be in the form of a down payment for goods or services that have been ordered but not yet delivered.

What is Accounts Payable?

Accounts payable is money that a business owes to its suppliers. This could be in the form of invoices for goods or services that have been received but not yet paid for. It could also be in the form of a down payment for goods or services that have been ordered but not yet received.

Key Differences Between Accounts Receivable and Accounts Payable

The key difference between accounts receivable and accounts payable is who owes the money. With accounts receivable, the customer owes the business money. With accounts payable, the business owes the supplier money.

Another key difference is the timing of the payments. With accounts receivable, the customer typically has 30 days to pay the invoice. With accounts payable, the business typically has 30 days to pay the invoice.

Another key difference is who manages the accounts. Accounts receivable is typically managed by the business's accounting department. Accounts payable is typically managed by the business's accounts payable department.

Another key difference is the interest rate. Accounts receivable typically does not accrue interest. Accounts payable typically accrues interest at the rate of 2% per month.

Another key difference is the impact on cash flow. Accounts receivable has a positive impact on cash flow because it represents money that is owed to the business. Accounts payable has a negative impact on cash flow because it represents money that the business owes.

Conclusion

Accounts receivable and accounts payable are two key types of accounts that businesses need to track. The key difference between the two is who owes the money. With accounts receivable, the customer owes the business money. With accounts payable, the business owes the supplier money.

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