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Accounts Payable vs Accounts Receivable - YouTube
Channel: Catching Clouds Academy
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hey it's patti scharf CPA and co-founder
catching clouds the leader in e-commerce
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accounting today I'm gonna help you
demystify accounts payable and accounts
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receivable so let's just jump in with an
example and get started
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all right so we've got Bob here Bob is
selling some stuff okay in order for him
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to sell some stuff he needs a buyer so
we've got Tom over here who's buying
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some stuff okay Tom has some cash
sitting in the bank or wherever he
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doesn't want to just trade cash for the
stuff or he doesn't want to write a
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check or something like that he wants to
actually pay on account or on terms so
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what this means is he's gonna set up an
account with the seller Bob and Bob and
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Tom are just gonna agree hey I'm gonna
pay you in 30 days instead of today and
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bob is like cool that's cool with me in
fact what I'm gonna do is I'm going to
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sell it not just net 30 which means he
would have to pay in 30 days I'm gonna
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sell it to 10 net 30 and that means he
will get a 2 percent discount on the
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purchase if he pays within 10 days
otherwise if he doesn't pay in 10 days
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he just pays the full amount by 30 days
okay so Bob sells the stuff to Tom see
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now Tom's got this stuff in his hot
little hands and Bob has a sales invoice
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so the invoice is basically the same
document whether you are the seller or
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the buyer it just kind of depends on its
interpretation depends on who you are
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so for Bob it's a sales invoice he
records a sale and he has this asset on
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his books called accounts receivable
it's because it's an account and he's
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expecting to receive some money okay so
not so crazy and then for Tom he has a
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bill also called an account payable
because he is supposed to pay it to Bob
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and he works so he records it as
supplies and now he has this liability
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on
books that he will need to pay so it's a
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debt to pay okay
now Tom decides to pay Bob so he takes
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some of his cash and the bill becomes no
more he sent some cash over to Bob Bob
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gets paid in full and voila there's no
more account payable no more account
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receivable because they have been paid
off and at the end of the day Bob's got
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got sales on his books and Tom's got
stuff in his hands supplies that he's
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going to use in his business and he has
a little bit less cash because he gave
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that to Bob okay that's all it is it's
it's nothing crazy it's pretty
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straightforward so if you have accounts
receivable it means your customers owe
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you money if you have accounts payable
it means you owe some other people money
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let me give you a little example at the
end of every month what we'll do for our
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clients is we will send them a list of
what's called the aged payables this is
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basically just a list of any of the
payables that have not yet been paid
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okay
and this report this just came out of
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zero shows a list of all of their
different vendors that they owe money to
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so ABC furniture they owe eleven fifty
smart agency they owe forty five hundred
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of this forty five hundred two thousand
came from April twenty five hundred came
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from May so on and so forth so you can
see how much money is still owing to all
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the different vendors and specifically
who they owe money to so we actually
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will send this to our clients at the end
of each month and ask them to review
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this and just make sure that it makes
sense because we're not the ones who are
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actually engaging the smart agency so we
don't know what bills should necessarily
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be on there we only know what we've got
and we only know what we've recorded so
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if there's something drastic that might
be missing or something that is on here
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that they know they've paid that can
open up a dialogue between our
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accountants and our clients and just go
wait no something went wrong somewhere
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and we can troubleshoot that and fix it
and then here's an example for aged
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receivables so say
thing we send a list and this is a list
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of all the customers who haven't paid
yet so we can see hey you know city
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limousines they have not paid since
March or earlier so maybe don't loan
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them any more money maybe cut off their
terms don't give them credit anymore so
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that's the whole point of accounts
payable and accounts receivable I hope
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this helped if you like this video
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