“Receivables & Payables”

 

In accounting, you are likely to encounter two specific terms: receivable and payable. The former refers to the money that people owe you and the latter is the money that you owe. This is the easiest way to explain the differences between accounts payable and accounts receivable, as well as loans payable and loans receivable. As you can probably tell, this does not suffice as a thorough breakdown of the two terms. There are more details that add to what separates them from each other.

 

What are receivables?

 

Receivables (aka. accounts receivable) are debts that customers owe to a company for goods or services that have been used or delivered, but not paid for yet. Their creation derives from an extension of a line of credit to customers and, on a company’s balance sheet, they are reported as current assets. They are deemed liquid assets because they can be used as collateral for securing a loan to assist in properly meeting short-term obligations.

 

Receivables are part of the working capital of a company. Properly managing them involves promptly following up with clients who have yet to pay and – if necessary – deliberate a payment plan arrangement. This provides extra capital to use as support for operations and it also reduces the company’s net debt.

 

What are loan payables?

 

There are times when a portion of the loan is technically still payable as of the date of a company’s balance sheet. In this scenario, the loan’s remaining balance is called a “loan payable.” Should the principal on a loan be payable within the subsequent year, it will be labelled as a current liability on the balance sheet.

 

Oftentimes, people mistake loan payables and “account payables” as being essentially the same. Account payables are accounts that reside within the ledger that represents a company’s obligation to repay a short-term debt to its creditors and/or suppliers. A loan payable is different in that accounts payable do not typically charge interest unless payment is late. Moreover, they are usually based on acquired goods or services. A loan payable, on the other hand, does charge interest and is often based on the earlier receipt of a lender’s sum of cash.

 

What makes them different from each other

 

What differentiates a loan payable from a loan receivable boils down to the fact that one is a liability to a company and the other is an asset.

 

A loan receivable is an asset account. For companies that are loaning the money, the “Loans Receivable” lists the amounts of money that your borrowers owe. However, this does not include the money paid; it is only the amounts that are expected to be paid. As for loan payables, they are liability accounts. A company may be due to repay money to the bank or another business anytime during the company’s history. This can sometimes include lines of credit, which are figures that should be included.