Trade Payables - Accounts Payable

vs. Trade Payables

The term Trade Payable is often used interchangeably with accounts payable. However, the two differ significantly. Trade payable is the money a company owes to its vendor for materials or supplies which are a part of the inventory. In contrast to this, the meaning of account payable is the total sum a company owes.

Accounts Receivable - Accounts Payable vs. Accounts Receivable

Accounts Payable and Accounts Receivable are the antitheses. Account payable means the amount a company owes to another company or a service provider. In contrast, account receivable means the amount owed to the company. Account receivable is an asset to the company.

On purchasing a service or goods, one of the parties will register the amount as a payable account whereas, the other party will add it as an account receivable on their balance sheets.

Let’s discuss a few accounts payable examples that explain the accounts payable meaning. Company A and Company B are in a business relationship. Company A makes a purchase from Company B on credit. This amount needs to be paid back within the stipulated time. Now, for company A, this amount will be registered as accounts payable. On the contrary, for company B, this amount will be registered as accounts receivable.

What Are Some Examples of Payables? Accounts Payable Best Practices

This is a relevant example of what is an account payable? Here the services are given on credit by the company increasing their liability which would be paid in the following month within the dedicated due dates or deadlines which will ultimately reduce the liability. However, for the time being, the credit of service given by the company increases its current liability. Say for example, if Company A buys certain goods from Company B on credit with a timeline of 15 days, the amount would be account payable for Company A but Account receivable for Company B. Hence the name itself suggests that the effect is on creditors, the more the creditors the more the accounts payable amount. It is also sometimes referred to as trade accounts payable.

The concept of accounts payable can be generalized to our dayto-day lives as well. Just like companies purchase goods and services on credit, we too purchase services like house cleaning, electricity, data connections, and tv connections. Most of us pay our dues for the month, towards the month-end. Another account payable example can be an employee receiving his salary towards the end of the month for his services to the company.