Accounts Receivable and Accounts Payable are processes in an accounting system to handle 2 important functions that aid in the production of financial statements for a business or organization. Each process is explained below:
1. Accounts Receivable
Accounts Receivable is part of the income side of a business. Invoices are produced to record sales of products or services purchased by one's customers. Invoices keep track of who purchased items as well as what was purchased. They are vital in maintaining sales of inventory (if a business sells inventoried items) and Cost of Goods Sold for the financial statements (when items invoiced and sold).
When a business provides terms to its customers (allow customer to pay over time - ex: Net 30 days), the invoice/accounts receivable system helps monitor when customers have paid and how much, which helps in knowing if invoices have been fully paid.
Accounts Receivable system also helps businesses monitor which customers are good customers who pay their invoices consistently, or which customers are not paying their invoices promptly (and ones not to extend additional credit).
2. Accounts Payable
Accounts Payable is part of the expense or asset purchases system of a business. Bills from vendors are entered into accounts payable to record purchases of inventory items, various expenses (ex: utilities) or assets like machinery and equipment. Checks are cut or electronic transfers are made as payments for the bills to satisfy one's obligation to the vendors. Accounts Payable provides the system to monitor bill payments to help with cashflow by determining when bills should paid.
Quickbooks software can help manage Accounts Receivable and Accounts Payable for businesses. It will handle even the more sophisticated systems that involve electronic payments and online processing. It will ensure data is reporting correctly on the financial statements and one's customer and vendor records are maintained properly.
