| Aspect | Accounts Payable (AP) | Accounts Receivable (AR) |
|---|---|---|
| Definition | Money a company owes to suppliers/vendors for goods or services received on credit. | Money owed to the company by customers for goods or services provided on credit. |
| Type of Account | Liability Account (Current Liabilities on the balance sheet). | Asset Account (Current Assets on the balance sheet). |
| Represents | Obligations/Debts the company must settle. | Claims/Income the company expects to receive. |
| Nature of Transaction | Outflow of cash in the future. | Inflow of cash in the future. |
| Recorded When | The company purchases goods/services on credit. | The company sells goods/services on credit. |
| Financial Statement | Appears under Current Liabilities. | Appears under Current Assets. |
| Objective | Ensure timely payments to suppliers to maintain good relationships. | Ensure timely collection from customers to maintain cash flow. |
| Example | A company purchases raw materials worth $10,000 on credit. | A company sells products worth $15,000 on credit to a customer. |
Key Takeaway :
* AP = Money you owe others (Liability)
* AR = Money others owe you (Asset)