Difference Between Accrued Expenses and Accounts Payable
The primary difference between accrued expense and accounts payable is that accrued expense is the expenses which are by the company incurred over one accounting period by the company but not paid actually in the same accounting period whereas accounts payable is the amount owed by the company to its supplier when any goods are purchased or services are availed.
Accrued expenses and accounts payableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period. are two essential terms recorded in the balance sheet of organizations. The critical difference between these terms is that accrued expense is recognized in the accounting books for the period it is incurred in whether cash is paid or not. Accounts payable is the payment to creditors who have made sales to the company on credit.
What are Accrued Expenses?
The term accrues means to accumulate. When a company accrues expenses, it means that the portion of the unpaid bills is increasing. The Accrual concept of accountingAccrual Concept Of AccountingAccrual Accounting is an accounting method that instantly records revenues & expenditures after a transaction occurs, irrespective of when the payment is received or made. states that all the inflows and outflows should be recorded when they occur. It is done irrespective of whether actual cash is paid or not.
It is the expense recognized in the books before actual payment is made. Examples of accrued expenses include utilities used for an entire month but when the bill is received at the end of the month. Workers who work for the whole period but payment is made to the employees at the end. Services and goods consumed, but no invoice received.
What is Accounts Payable?
Accounts payable includes all expenses arising from credit purchases of goods or services from suppliers/vendors. Accounts payable are current liabilitiesCurrent LiabilitiesCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They're usually salaries payable, expense payable, short term loans etc. and are due within twelve months of the date of the transaction. In balance sheetsBalance SheetsA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company., nonfinancial expenses that are incurred very frequently are salaries, wages, interest, royalties are included in the classification.
The primary differences between accrued expenses and accounts payable are the parties to whom it is paid.
Accrued Expenses vs. Accounts Payable Infographics
Critical Differences Between Accrued Expenses and Accounts Payable
- Accrued Expenses is a term used in accounting where the expense is recorded in the books before it is paid for; while, accounts payable is the amount that the company has to pay in the short term to the creditors.
- Expenses are periodic and are listed on the balance sheet as Accrued Expenses as a current liability in the balance sheet. Where are while accounts payable are a part of the everyday process as a current liability on the balance sheet.
- All companies include accrued expenses. Accounts payable arises only when purchases are made on credit.
- Accrued expensesAccrued ExpensesAn accrued expense is the expenses which is incurred by the company over one accounting period but not paid in the same accounting period. In the books of accounts it is recorded in a way that the expense account is debited and the accrued expense account is credited. are payable to employees and banks. Accounts payable only has records when payment is due to creditors.
- Accrued expenses are things you owe but do not have invoices for a while. Accounts payable are the invoices the business has received.
- Accrued expenses are realized on the Balance sheet at the end of the accounting year and are recognized by adjusting journal entriesAdjusting Journal EntriesAdjusting Entries in Journal is a journal entry made by a company at the end of any accounting period on the basis of the accrual concept of accounting. Companies are required to adjust the balances of their various ledger accounts at the end of the accounting period in order to meet the requirements of the various authorities' standards.. Accounts payable are realized on the balance sheet when a company buys products or services on credit.
|Particulars||Accrued Expenses||Accounts Payable|
|Meaning||Accrued Expenses is a term used in accounting where the expense is recorded in the books before it is paid for.||Accounts payable is the amount that the company has to pay in the short term to the creditors.|
|Balance Sheet||Expenses are periodic and are listed on the balance sheet as Accrued Expenses as a current liability in the balance sheet.||These expenses are a part of the everyday process and are listed as Accounts Payable as a current liability on the balance sheet.|
|Occurrence||All companies include accrued expenses.||Accounts payable arises only when purchases are made on credit.|
|Example||Rent, wages, bank loan’s interest – basically where payments are made monthly||Accounts payable only has records that are due to the creditors.|
|Counter-party||These expenses are payable to employees and banks.||These expenses only have recorded when payment is due to creditors.|
|Definition||Accrued expenses are things you owe but do not have invoices for||Accounts payable are the invoices the business has received.|
|Realization||These expenses are recorded on the balance sheet at the end of the year and are adjusted by the journal entries.||Accounts payable are realized on the balance sheet when a company buys products or services on credit.|
- Accrued expenses are the expenses that are already incurred in the past and will be due in the future period. As discussed above, accrual accounting is a method of tracking these payments.
- Accounts payable, on the other hand, are liabilities that will be paid soon. Payables are those which are still to be paid while expenses are those that have already been paid.
- Examples of payables are electric bills, telephone bills and also include those that are purchased using credit cards or notes, while examples or expenses are payments for suppliers, rent.
This article has been a guide to the Accrued Expenses vs. Accounts Payable. Here we discuss the top differences between accrued expenses and accounts payable along with infographics and comparison table. You may also have a look at the following articles –