What are accounts receivable?

Accounts receivable are when a company has delivered a good or service, but not yet been paid for it.

Accounts receivable are listed in the current assets section of the balance sheet. Assets are any item of property owned by the company that has value. Current assets are expected to be sold, used, or exhausted through standard business operations within one year.

Words and terms that might be used interchangeably with accounts receivable include: 

→Receivables

→Bills Receivable

→Debtor Balances

→Trade Receivables

→Outstanding Invoices

What are accounts payable?

Accounts payable occur when a company receives goods or services for which it did not pay upfront but used credit. When you’re out to dinner with a friend who foots the bill until you pay them back, this is roughly the equivalent of accounts payable.

Accounts payable are found under the current liabilities section of the balance sheet. Liabilities are all of a company's financial obligations owed to others. Current liabilities are bills due within the following year.

Words and terms that might be used interchangeably with accounts payable include:

→Supplier Debt

→Outstanding Bills

→Unpaid Expenses

→Payables

→Accrued Expenses

Key Takeaway

Accounts receivable and accounts payable are essential components of a company's balance sheet, representing two sides of its financial operations.

Accounts receivable, listed under current assets, reflect money owed to the company for goods or services provided but not yet paid for.

Conversely, accounts payable, found under current liabilities, represent the company's obligations to pay for goods or services it has received on credit.

Understanding these terms helps investors assess a company’s cash flow, operational efficiency, and financial stability.