As a business owner, it is important to have a grasp on money that is coming and going from your business. This is why understanding accounts payable and accounts receivable is so vital to your success. They are often confused for one another because they are closely related in a way. Mark Dicus & Company is here to talk about these two accounts and how they work for your business.
Accounts Payable
When you hear accounts payable mentioned in business, you might not understand what they’re referring to. The accounts payable are short-term debts that the company owes, usually to vendors or suppliers. Some simple examples of accounts payable would include travel expenses, raw materials, transportation, products and more. It isn’t used to cover the cost of payroll and larger expenses like that. Wages are processed through payroll, but any monthly expenses that your business has should be recorded in accounts payable. As it is used to help you keep track of your expenses and the money that you owe to keep your business running.
Accounts Receivable
On the other end of the spectrum you have accounts receivable. This is going to be money that customers and clients owe you. This is considered one of your company’s assets. Accounts receivable are valuable to business owners because it helps them track the money that is coming in through pending payments. When a customer or client makes a payment to you, it is removed from the ledger to keep things neat and orderly. It helps you keep track of payments that aren’t being made on time too. You can then send out another invoice as well as a notice of any fees that have accrued because of the late payment.
Comparing Accounts Payable & Accounts Receivable
While ledgers are used to keep track of both accounts payable and accounts receivable, there are clearly some differences between the two of them. Accounts payable keeps track of payments that are made to vendors and suppliers to give you a clear picture of your cash outflow. Accounts receivable shows you the money that you receive for selling your goods or services. This leads to your revenue. When you have these two numbers to compare to each other, it helps you determine how profitable your business is. When you subtract the total of accounts payable from the total of your accounts receivable, you will know if your business is profitable when you have a positive number. If you have a negative number, you know that you need to make some adjustments to help you get back on track.
Bookkeeping Services & More in Salt Lake City, St. George, West Valley City, Provo, Orem, West Jordan & Greater Cedar City, Utah
You can count on Mark Dicus & Company to help you keep your accounts payable and accounts receivable recorded and accurate with our bookkeeping services. It is our goal to help you have a clear picture of the successes and failures in your business so that you can make plans for the future. Call us today!