It’s easy to confuse the definitions of accounts payable with accounts receivable. In both cases, money is owed, and payments need to be made. However, it’s often difficult, even for an experienced business owner, to tell which account is an asset and which one is a liability. There are several differences to note between accounts receivable and accounts payable.

Money Owed
Accounts payable is the money that a company owes or pays to another business, such as vendors and suppliers. Accounts receivable is the money that is owed to or received by a business in the form of debts. 

Duration of Term
Accounts payable are short-term debts that are paid off within a given period. When payments are not received, the account may go into default and accumulate fees. These debts involve business-to-business transactions.

Accounts receivable are longer-term debts that take months, years, or even decades to pay off. These accounts are often written off and sold to debt collectors when payments cannot be made. These debts involve customer-to-business transactions, so they are less guaranteed to be paid off in full and on time.

Accounting Entries
The entries made for accounts payable tend to be opposite from those made for accounts receivable. An accounts receivable entry is an asset because it is a payment received, while an accounts payable entry is a liability that must be paid eventually. In addition, the funds coming from accounts receivable are often used to pay off the outstanding payables, so the amounts are compared from both types of accounts.

Types of Accounts
Accounts receivable are usually comprised of one or two accounts, while accounts payable are a few additional accounts like sales taxes payable and interest payable.

Allowance for Doubtful Accounts
If no payments are received, only accounts receivable can be counterbalanced by an allowance for doubtful accounts. This allowance allows the company to estimate the number of receivables that they expect to receive an estimate the amounts of bad debts.

Accounting will always be a hot topic with the rise in identity theft and cybercrimes. But people who are learning about accounting still don’t understand the complete list of differences between accounts receivable and accounts payable. They easily confuse the two and make errors that lead to major financial setbacks, but with a little research, each and every error can be prevented.