What Are Accounts Payable & Receivable?

Knowing your accounts receivable and payable is part of responsible money management.

It is sometimes difficult to track your money. However, with proper budgeting and recording, you can keep an accurate account of where your money is traveling each month, the people or companies you owe and what funds you are able to save. Whether you are a business or an individual, an understanding of accounts receivable and accounts payable is helpful.

Accounts Payable

Accounts payable refers to a company's obligation to pay off a short-term debt to the person or company to which it owes money. It is also the department or division of a company that has the task of paying monies that the company owes its suppliers, the bank and other creditors, according to Investopedia. It denotes the short-term expenses the company intends to pay at a later date.

Accounts Receivable

Accounts receivable is a way of extending credit to a customer. It involves the invoicing of that consumer or company for products or services you have rendered. On the invoice, you are placing the amount of money the individual or company owes you, and placing a time limit on when they must actually pay--whether in 30, 60 or 90 days.

Keeping Accurate Ledgers

Sometimes money flows in and out so rapidly that it is hard to keep up with what monies are coming in, and what is leaving your account. For this reason, keeping an accurate ledger becomes important. As the Business Owner's toolkit suggests, you should keep such a record for each customer. As soon as that person or business pays, you record it in the ledger.

Keep all records of receipts, as well as ledgers you do by hand, in a safe place. If you are a business, you will need that information to give to your accountant should there be an audit.

Household Accounts Payable

Accounts payable can also refer to household accounts. According to Investopedia, personal accounts payable involves bills, such as utility invoices. This includes expenses such as rent, electricity, gas, cable and telephone. You must pay these expenses every month, and as is the case for businesses, you should keep a record of monthly expenses, so that you may construct your budget for next month accordingly.

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