Volume 1 - August 2021

Starting a new business can be very overwhelming. There are many things you have to get straight in order to make sure everything is set-up correctly, especially your accounting and bookkeeping processes. For someone who has no experience with this it can be like learning a new language. Accounting is actually kind of like a unique language.

In order to help simplify things for you, I will be picking a monthly topic and explaining it in layman's terms.

This month's topic:

What is the difference between Accounts Receivables and Accounts Payables?

What Are Accounts Receivable (AR)?
Accounts Receivables (AR) is the amount of money owed to you for goods and/or services that you have provided but have not yet been paid for by the customer/client. Accounts Receivables are listed on the balance sheet as a Current Asset.

What Are Accounts Payable (AP)?
Accounts payable (AP) is the amount of money you owe to a Vendor/Supplier for items and/or services purchased by your the business. Accounts Payables are listed on the balance sheet as a Short-term Liability.

What Is the Difference Between Accounts Receivable and Accounts Payable?
Account payable are your liabilities, which you owe to your vendors and/or suppliers for goods and/or services purchased. Accounts receivable are your assets, which your customers owe you in exchange for goods and/or services purchased.

A few more helpful tips to distinguish between AR and AP:

· Customers pay you.

o Proposals/Estimates are sometimes used before actual invoicing to let your

clients/customers know what they will pay for the goos/services you will be providing

them in the future. This helps them to plan and budget.

o Once you provide the goods/services you send the customer an Invoice that details

the items and/or services you agreed to actually provide.

o If you are shipping goods to your customers you will send the customer a Packing

List along with the items that you are shipping to them.

· Vendors/Suppliers – you pay them.

o You send them a Purchase order (PO) listing the items you want.

o They send you an Invoice that matches the PO. This is what you use to create your

Account Payable (AP) from.

Think of it as checks and balances, accounts payable go out and accounts receivable come in.

Please let me know if you have any questions on the topic.

Dream it. Wish it. Do it.

Lani