Both accounts payable and accrued expenses are the terms that you will usually see when you read the balance sheet of your company. When the accountants from an accounting firm in Johor Bahru are recording business transactions for the business owners, they will record the payment that the company needs to pay to its creditors who have made sales on credit to it as the accounts payable. On the other hand, accrued expenses are the costs incurred in an accounting period, yet the company has not paid for them in the same period.
Accounts payable (Also see Controls Over Accounts Payable) covers all expenses that are associated with the credit purchases that the company has made from the suppliers. These amounts are the sums that the company needs to pay to the supplier who has provided the goods and services to it before it pays to them. Accounts payable fall under the category of current liabilities and they will become due in a year.
Accrued expenses, on the contrary, is the expenses that the company would recognise in its books of accounts before it makes the payment. As the term “accrue” means to accumulate, the bills that the company has not paid will increase when it accrues expenses. Business owners should record the inflows as well as outflows when business transactions occur, no matter whether they have paid the cash, to be in line with the accrual (Also see Accrual and Deferral) concept of accounting.
The main difference between accounts payable and accrued expenses is the party that the business should pay the bill to. Accounts payable covers the business transactions that are related to the payments that are due to the creditors. Contrarily, the accrued expenses include wages and salaries, rental, bank loan interest, and so on. They tend to refer to the payments that the company should make every month.
In the balance sheet (Also see How Do Balance Sheet & Trial Balance Differ from Each Other?), both accounts payable and accrued expenses are categorised as the company’s current liability. The difference is that the accounts payable are part of the daily processes of the business, while accrued expenses are those that are periodic in nature. Thus, not all companies will incur accounts payable as this only arises when the company buys goods or services on credit. Yet, all companies will incur accrued expenses.
In short, accounts payable are the liabilities that the company needs to pay to its creditors in the near future. As against, accrued expenses are the costs that have incurred and will become due in future. Business owners should always analyse the cash flow of their companies to ensure that their companies have enough cash to pay for these short-term debts so that they will not fall into financial (Also see Do You Know What is Financial Reporting) crisis without them knowing.