It is important to know where your money is coming and going when you’re running a business. To get a clear picture of these numbers, you have accounts payable and accounts receivable to help you. Knowing how to use these tools can help you achieve as much success as possible as a business owner. Propel Your Accounting is here to talk about some key differences between these ledgers so that you can better understand where your business stands.
Accounts Payable
Understanding accounts payable is an important part of owning a business. This is going to show you all the short-term debts that you have. This is usually money that you owe suppliers and vendors. You might include monthly debts in your accounts payable, but things like wages and mortgages will not be made here. When you receive an invoice for a payment that needs to be made, it is recorded in the accounts payable ledger. It is then up to the accounting and finance team to make that payment before it is due and fees are issued for late payments. This is a great way to keep track of the expenses and money owed.
Accounts Receivable
On the other hand, the accounts receivable will be a way to keep track of the money that is coming into the business. This is going to be any payments that are due to you by customers and clients for your products and services. This money is considered an asset to your business. The invoices sent out from accounts receivable should include the date the services were rendered, the amount due, the deadline for payment and sales tax. This is recorded in the accounts receivable ledger and will be removed from the ledger once the payment is made. This is a great way to keep track of the money that customers and clients owe you.
How Accounts Payable & Accounts Receivable Compare to One Another
One important part of these ledgers is to compare them against each other. This can give the full picture of where your business stands. When you combine all the figures in these ledgers and subtract the total of accounts payable from the total of accounts receivable, you want to have a positive number. If you have a negative number, you need to make some adjustments to how you run your business. These are great tools to help you set a budget for your business.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
A vital part of owning a successful business is to know where your business stands financially. To help you keep all the numbers straight, Propel Your Accounting is here to talk care of your accounting and bookkeeping needs. We will make sure that you have all the numbers and information that you need to make plans for the future of your business. Let us help partner with you to be your financial team. Call us today!
