Difference Between Accrued Expenses and Accounts Payable

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.read more 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, whether cash is paid or not. On the other hand, accounts payable is the payment to creditors who have made sales to the company on credit.

What are Accrued Expenses?

The term accrued means to accumulate. When a company accrued expenses, 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. read more 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. 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.

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 What is Accounts Payable?

Accounts payable include all expenses 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.read more 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.read more, 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; accounts payable is the amount 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. Whereas 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.read more are payable to employees and banks. Accounts payable only have 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.read more. Accounts payable are realized on the balance sheet when a company buys products or services on credit.

Comparative Table

Final Thought

  • Accrued expenses are expenses 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.On the other hand, accounts payable are liabilities that will be paid soon. Payables are still to be paid, while expenses are those that have already been paid.Examples of payables are electric and telephone bills and those purchased using credit cards or notes, while examples or expenses are payments for suppliers and rent.

This article is 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 a comparison table. You may also have a look at the following articles –

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