What is the difference between an accrual and an account payable?

what is account receivable turnover

The difference between an accrual and an account payable is that an accrual is an accounting adjustment for revenue that has been earned but not yet recorded or an expense incurred but not yet recorded, and an account payable is a liability to a creditor that denotes when a company owes money for goods or services.

An account payable is actually an accrual, but not all accruals are an account payable. An account payable occurs when a company receives a good or service prior to paying for it. Under the accrual accounting method, the transaction is recorded as an accounts payable liability on the balance sheet and an expense on the income statement. When the expense is paid, the account payable liability account decreases and the asset used to

pay for the liability also decreases.

An accrual occurs when a company's good or service is delivered prior to receiving payment or when a company receives a good or service prior to paying for it. Under the accrual accounting method, accrued revenue occurs when a company offers to sell its good or service on predetermined credit terms. Take for example a company that offers a monthly software subscription but bills you for the subscription at the end of the month.

The revenue made from the software subscription is recognized on the income statement in the month the service was delivered, but an accounts receivable asset account is created on the company's balance sheet. When the bill is paid, cash is received and the accounts receivable account is reduced.

Source: www.investopedia.com

Category: Forex

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