Accounts payable and accounts receivable are the two accounts that sit closest to your bank balance without being your bank balance. One tracks what is coming in, the other tracks what is going out, and both describe money that has been promised but not moved. Confuse them and your cash position looks better or worse than it’s. This guide puts accounts payable vs accounts receivable side by side with plain examples, shows the journal entries behind them, and answers the questions people ask most, including whether receivable counts as revenue.
Key Takeaways
- Accounts receivable is money customers owe you. Accounts payable is money you owe suppliers. Both are balance sheet accounts, not income or expense.
- Receivable is a current asset and payable is a current liability, and the gap between them is a quick read on near-term cash.
- Accounts receivable is not revenue. Revenue is recorded when you earn it; the receivable is the unpaid balance that remains after the sale.
- Accounts payable is not an expense either. The expense is recorded when you receive the goods or service; the payable is the bill you have not paid yet.
- An aging report for each side shows which customers are slow and which bills are coming due, which is most of what a small business needs to manage cash.
Accounts payable vs accounts receivable: the definitions
Accounts receivable, usually shortened to AR, is the total customers owe you for goods or services you have already delivered and invoiced. It is an asset because you have a legal right to collect it.
Accounts payable, or AP, is the total you owe suppliers and vendors for goods or services you have already received but not yet paid for. It is a liability because someone has a legal right to collect it from you.
The direction is the only difference. AR is a receivable from the customer’s side of the transaction; AP is a payable from yours. When your customer records a purchase from you as accounts payable, you record the same sale as accounts receivable.
Accounts receivable, with an example
A landscaping company finishes a $3,000 job on March 10 and sends an invoice due in 30 days. The work is done and the sale is complete, so revenue is earned on March 10. The customer hasn’t paid, so the $3,000 sits in accounts receivable until the check arrives.
The entries look like this:
- March 10, invoice sent: debit accounts receivable $3,000, credit revenue $3,000.
- April 8, payment received: debit cash $3,000, credit accounts receivable $3,000.
Notice that revenue is recorded once, on the invoice date. The payment entry doesn’t touch revenue at all. It just moves the $3,000 from “owed to us” into “in the bank.”
Accounts payable, with an example
The same landscaping company buys $800 of mulch on account from a supplier on March 12, with payment due in 30 days. The mulch was received and used, so the expense belongs to March. The bill is unpaid, so $800 sits in accounts payable.
- March 12, bill received: debit materials expense $800, credit accounts payable $800.
- April 10, bill paid: debit accounts payable $800, credit cash $800.
Again, the expense is recorded once, when the bill is entered. Paying it later reduces the liability and the bank balance and nothing else.
The comparison table
| Question | Accounts receivable | Accounts payable |
|---|---|---|
| What it represents | Money customers owe you | Money you owe suppliers |
| Balance sheet section | Current asset | Current liability |
| Normal balance | Debit | Credit |
| Created by | Sending an invoice | Receiving a bill |
| Cleared by | Customer payment | Paying the vendor |
| Effect on cash when cleared | Cash goes up | Cash goes down |
| Report used to manage it | AR aging | AP aging |
| Risk if ignored | Bad debt, cash shortfall | Late fees, damaged supplier terms |
Scroll sideways to see all columns.
Is accounts receivable a revenue?
No. This is the most common mix-up, and it comes from the fact that the two are created at the same moment. When you invoice a customer, revenue goes up and accounts receivable goes up by the same amount. But they’re different things. Revenue is what you earned; it appears on the income statement and stays there. Accounts receivable is what you have not yet collected; it appears on the balance sheet and shrinks as customers pay.
A quick test: if a customer pays you, does revenue change? It doesn’t. Only the receivable and cash change. That tells you the receivable was never revenue in the first place.
Is accounts receivable an expense?
No. An expense is a cost of running the business. A receivable is an amount owed to the business. They are on opposite sides of the ledger. The only time a receivable turns into an expense is when you conclude a customer will never pay and you write the balance off as bad debt. At that point the receivable goes down and bad debt expense goes up.
Is accounts payable an expense?
Also no, though it’s closer. The expense is recorded when you enter the bill, and the payable is created in the same entry. The payable is the unpaid obligation, not the cost itself. If you pay a bill, the expense doesn’t change; the liability and your cash do.
What each one tells you about cash
Because both accounts describe money that hasn’t moved yet, they’re the best short-range forecast you have. Total AR is cash you can expect over the next 30 to 60 days if customers pay on time. Total AP is cash that will leave over the same window. When AP is larger than AR and the bank balance is thin, a shortfall is coming and you can see it weeks ahead.
The aging reports make this concrete. An AR aging groups open invoices by how overdue they are: current, 1 to 30 days, 31 to 60, and so on. The older buckets are where collection calls belong. An AP aging does the same for your bills and shows which ones to pay this week and which can wait until the terms run out.
This is also why cash-basis and accrual-basis books look so different. On a cash basis you record nothing until money moves, so AR and AP don’t exist in the ledger at all. On an accrual basis they carry the timing difference between doing the work and getting paid. The cash vs accrual guide covers when each method fits.
Keeping both sides current
A few habits keep AR and AP honest.
- Enter bills when they arrive, not when you pay them. Otherwise AP is always understated and the expense lands in the wrong month.
- Invoice the day the work is done. Every day between delivery and invoice is a day the customer’s 30-day clock hasn’t started.
- Match customer payments to specific invoices. Applying a payment to “the account” leaves you unable to tell which invoices are still open.
- Review both aging reports weekly. Fifteen minutes is enough to spot the customer who is drifting past 60 days and the vendor bill that’s due Friday.
Bookkeeping software handles the mechanics: it records the revenue and receivable together when an invoice goes out, records the expense and payable together when a bill comes in, and applies payments to the right open items. GlassJar manages bills and vendor payments on the payable side and invoices and customer payments on the receivable side, with both feeding the same ledger. For a deeper look at how the timing of receivables and payables shapes what your income statement shows, see how receivables and payables affect revenue and expense recognition.
Frequently asked questions
What is an example of accounts receivable?
A $3,000 invoice you sent to a customer on net-30 terms that has not been paid yet. Until the payment arrives, that $3,000 is accounts receivable.
Where does accounts receivable go on the balance sheet?
Under current assets, usually right after cash. Accounts payable goes under current liabilities.
Is accounts receivable a debit or a credit?
Accounts receivable normally carries a debit balance. You debit it when you invoice and credit it when the customer pays. Accounts payable is the mirror image, with a normal credit balance.
Can a business have both with the same company?
Yes. If you buy from a company and also sell to it, you’ll have a payable to them and a receivable from them at the same time. They stay in separate accounts unless you agree to net them.
What happens to accounts receivable if a customer never pays?
You write it off. The receivable is removed and the amount becomes bad debt expense, which reduces profit in the period you write it off.
