Difference Between Account Payable vs Accrued Expense
Accounting practice takes place in each and every company, and it is essential for the smooth functioning of any corporate as every corporation needs to record the entries of cost and revenue under various heads. There are various kinds of accounts that are prepared when a company closes its book. Accounts payable vs accrued expense are one of these kinds of accounts that are prepared by the company. In this Accounts payable vs accrued expense article, we will try and understand the working and the nature of these kinds of accounts and their characteristics.
Head to Head Comparison Between Account Payable vs Accrued Expense (Infographics)
Below is the top 5 difference between Account Payable vs Accrued Expense:
Key Differences between Account Payable vs Accrued Expense
Let us discuss some of the major differences between Account Payable vs Accrued Expense:
- Account payables are basic financial obligations of ant business that are classified as current liabilities. They generally do not involve any written agreement of a payment to be made within a specified period. On the other hand, accrued expense are expenses which are already accrued by the company and have been mentioned or written in the books of accounts, but the company has not yet incurred the cash outflow of that respective expense item as in the case of accounts payable.
- Accounts payables are generally due to suppliers or subcontractors, and therefore there is no formal interest on the instrument and no fixed obligation to pay. On the other hand, the accrued expense comes in the category where the supplier or the vendor has not raised any invoice or and there is no fixed payment cycle which is due to the supplier as the payment has not yet been furnished.
- Account payables are always a short-term obligation and are a current liability; On the other hand, an accrued expense is only an estimate of how much money does the company owes to its suppliers or vendors there is no fixed credit payment cycle related to it. Accrued expense works on the accrual method of accounting as a result accrued expense is likely to be different from the actual invoice, which is to be paid to the vendor.
- Accounts payables is an informal channel which is due to the vendors and the suppliers which makes the payment more flexible and which no formal or written agreement. On the contrary, an Accrued expense can be formal or informal, or it can be explained as the cost for which no invoice has been raised by the client or no invoice has been incurred. Whereas accounts payable the bill has already been received by the company.
- In Account Payables, there is no adjusting entry that needs to pass in the general ledger account whereas on the other hand, accrued expense needs adjustment entry to be passed to match the account.
Account Payable vs Accrued Expense Comparison Table
Let’s look at the top 5 Comparison between Account Payable vs Accrued Expense
|Accounts Payable||Accrued Expense|
|Accounts payable is the total amount of debt the company has to pay to its creditors for goods or services bought on credit.||Accrued expenses are the total liability that is payable for goods and services that have been received but not been billed.|
|Account Payable is a balance sheet item.||Accrued Expense is an income statement item but can also be shown in the company’s balance sheet.|
|Accounts payable is not an estimate as it is the actual liability that needs to be paid off.||An accrued expense is only an estimate as the company needs to know how much of the cash outflow for that particular cost needs to be incurred by the company.|
|Examples of accounts payables are:
||Examples of Accrued Expense are:
|A company recognizes accounts payable every day as every day the company purchases goods on credit.||Accrued expenses are not an item for which the company recognizes expenses every day.|
Accounting recognition is an important aspect in every company, and each company should follow the various accounting principles which are globally recognized, such as the US Generally Accepted Accounting Principles and International Financial Reporting Standards. Books should be prepared in accordance with these two whichever applies to the company and should be check and thoroughly audited by an external auditor who can give a sign-off to the end of the audit which in turn increases the credibility of the company its shareholders.
This has been a guide to the top difference between Account Payable vs Accrued Expense. Here we also discuss the Account Payable vs Accrued Expense key differences with infographics and comparison table. You may also have a look at the following articles to learn more –