Definition of Accounts Payable and Accounts Receivable

Accounts Payable
An accounting entry that represents an entity’s obligation to pay off a short-term debt to its creditors. The accounts payable entry is found on a balance sheet under the heading current liabilities.
Accounts payable are often referred to as “payables”.
Another common usage of AP refers to a business department or division that is responsible for making payments owed by the company to suppliers and other creditors.


 Accounts Receivable
Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from a few days to a year.

On a public company’s balance sheet, accounts receivable is often recorded as an asset because this represents a legal obligation for the customer to remit cash for its short-term debts

Accounts Receivable Conversion

A process that allows paper checks received in payment for an account receivable to be electronically scanned and converted into an electronic payment through the Automated Clearing House. ARC saves time and the expense of actually processing the check. Both the vendor and the bank on which the payment was drawn receive only an electronic image of the check.

Accounts Payable Turnover Ratio

A short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period.

Accounts Payable Turnover Ratio = ( total purchases made from suppliers / average accounts payable amount during the same period )