How do you use account payble and receivable?

Answer 1

These are basic accounts. Accounts Payable is used by one company to record the amount owed to it by another company or person. Accounts payable is a liability account. Say your company purchases inventory from another on account, your company records what it owes as a liability in accounts payable. AP increase with a credit and decrease with a debit.

The opposite is true with Accounts Receivable. Your company records money owed to it by another company or person in AR. AR is a asset account and therefore increase with a debit and decreases with a credit.

How to use these accounts are pretty simple and straight forward for the basics. Let's say we are company A, we purchase inventory from Company B on account. We use AP - Company B and record the purchase, we credit the amount to that account. So say we purchased Inventory in the amount of $500 on account our first recording would be:

Inventory (dr) $500

AP - Comp B (cr) $500

No cash has changed hands at this point so cash does not figure into this transaction.

Now AR, say we sale inventory to Company B on account for $500, The transaction is as:

AR - comp B (dr) $500

Sales (cr) $500

Again not cash has changed hands at this time.

Most company's use a subsidiary ledger to record individual accounts, then a general ledger to show a running total of all AP and AR accounts.