What is accounts payable vs accounts receivable?
Accounts receivable is money customers owe you. When you complete a project and send an invoice, that amount becomes a receivable until the customer pays. It shows up as an asset on your balance sheet because it represents future cash coming in.
Accounts payable is money you owe to vendors and suppliers. When you receive a bill for materials, rent, or professional services, that amount becomes a payable until you send payment. It appears as a liability on your balance sheet because it represents cash going out.
The easiest way to remember the difference: receivable means you will receive money, payable means you will pay money.
Both directly affect your cash flow, just in opposite directions. High receivables mean you have completed work but have not collected payment yet. Your profit and loss statement might look healthy while your bank account runs low. High payables mean bills are waiting to be paid, which will reduce available cash when those due dates arrive.
A business can be profitable on paper and still struggle if customers pay slowly or if payables pile up without a plan. Understanding both numbers helps you spot cash crunches before they happen. Any experienced San Diego bookkeeper will tell you these two line items often reveal operational problems before they become crises.
Managing receivables means tracking open invoices, following up on overdue accounts, and setting clear payment terms from the start. Managing payables means recording bills when they arrive, scheduling payments strategically, and never missing due dates. Many small businesses benefit from outsourcing their bills and payments to ensure nothing slips through the cracks.
Most accounting software generates aging reports for both. The A/R aging report shows which customers owe you and for how long. The A/P aging report shows which vendors you owe and when payments are due. Reviewing both weekly or at minimum monthly prevents surprises and helps you plan around your actual cash position rather than just what your profit and loss statement says.
San Diego's Small Business Bookkeeper
The Next Step:
A Short Conversation
A quick call to tell us about your business. We'll listen, answer your questions, and give you a clear price quote.
More Questions
What records should I keep for my small business?
Keep financial records like bank statements, receipts, and invoices for at least seven years. You'll also need tax returns, business formation documents, contracts, and employee records if you have staff.
Read answerHow much does a bookkeeper cost for a small business?
Small business bookkeeping typically costs $200 to $600 per month for basic services. The actual price depends on transaction volume, industry complexity, and what's included beyond basic reconciliation.
Read answerShould I use cash or accrual accounting for my business?
Most small service businesses do fine with cash basis because it's simpler and matches your bank activity. Accrual gives a more accurate picture of profitability if you have significant receivables or need financial statements for outside parties.
Read answerHow do I know if my books are accurate?
Start with bank reconciliation. If your accounts match your statements to the penny, that's the foundation. Then check that balance sheet accounts reflect reality and your profit numbers match how the business actually performed.
Read answerCan a bookkeeper help me with taxes?
Most bookkeepers don't file tax returns, but they help with taxes in ways that matter more than the actual filing. Clean books mean accurate deductions, faster tax prep, and records that survive an audit.
Read answerWhat is bank reconciliation and why does it matter?
Bank reconciliation matches your accounting records to your bank statement to confirm they agree. It catches errors, detects fraud, and ensures your financial reports reflect reality. Without it, you don't actually know how much money you have.
Read answer
