Accrued Expenses vs Accounts Payable: Difference Between Accounts Payable and Accrued Expenses

The accrual method of accounting introduces two types of accounts—accrued expenses and accounts payable. While they might appear to be the same—payments owed and paid, they are not. 

Accrued expense refers to expenses a company incurs but doesn’t pay for within the same accounting period. On the other hand, accounts payable is the amount a firm owes to its supplier. 

Continue reading to know more. 

What Are Accrued Expenses?

Accrued expenses, also known as accrued liabilities, are payments that an organisation owes for goods already delivered. Rentals, salaries, loan payments, and utility bills are examples of accrued expenses. 

These costs are recorded on the balance sheet at the end of the accounting period and adjusted for goods and services received but not billed. They are also recorded in the general ledger as journal entries.

In accounting, the accrual concept suggests that all inflows and outflows must be recorded as they occur, irrespective of making payment, cash is paid.

Example of An Accrued Expense

Here are some examples of accrued expenses:

• Utilities were used for the month, but no receipt was issued before the end of the period.
• Compensation overdue to workers
• Goods and services received but not billed

What Are Accounts Payable?

Accounts payable are current liabilities of a company that must be paid off within 12 months or a normal operating cycle. Even if not paid off within 12 months, they are still classified as current liabilities. Companies that fail to pay their creditors risk defaulting, which is the failure to repay a debt.

Accounts payable are a credit extension from the vendor, meaning that companies can pay their suppliers later. This allows the business to turn its inventory into cash, which can then be used to pay the supplier. 

Example of Accounts Payable

Here are some examples of accounts payable:

• Raw Materials/Power/Fuel Purchase
• Transportation and Logistics
• Assembling and Subcontracting Works
• Equipment Leasing
• Licensing

Similarities Between Accrued Expenses and Accounts Payable

Sometimes an accrued expense can be converted into an account payable, but not vice versa. Some other similarities between accrued expenses and accounts payable are as follows:

• They both involve some debt, and accountants consider their business expenses.
• They are both due within a year and are considered current liabilities.
• They are both indicators of a business’s financial health.

Differences Between Accrued Expenses And Accounts Payable 

Here are the key differences between accrued expenses and accounts payable in a tabular format to help you understand better: 

Conclusion

The whole point of figuring out the differences between accrued expenses and accounts payables is to keep track of your business's expenses and financial obligations. Plus, it also helps with accurate financial recognition and disclosure.

Accrued expenses are debts for which a business has not received an invoice. On the other hand, accounts payable are obligations the company owes and for which it has received an invoice. These are often credit-purchased things; however, it often also includes prepaid expenses.