Accounts receivable (AR) is money customers owe you for goods or services you have delivered; accounts payable (AP) is money you owe your suppliers for goods or services you have received. AR is a current asset (cash coming in); AP is a current liability (cash going out).
They are two sides of the same credit transaction. When you sell on credit, you record a receivable and your customer records a payable for the identical amount. On the balance sheet AR increases with a debit and AP increases with a credit. As a vendor, your AR team issues invoices to customers; those invoices land in the customer's AP team for payment. The simplest memory aid is "AR sends, AP pays." Healthy businesses manage both deliberately, because AR funds the cash you use to settle AP.
Accounts receivable and accounts payable are the two halves of how credit moves between businesses. One is your incoming cash, the other your outgoing cash, and the gap between how fast you collect AR and how slowly you can responsibly pay AP is a big lever on your working capital.
The same sale from both sides of the ledger
The fastest way to understand AR versus AP is to watch one transaction land on two companies' books at once. Acme Supplies sells $5,000 of goods to Bright Retail on Net 30 terms. Acme records a receivable; Bright records a payable.
Seller: Acme books AR
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable | $5,000 | |
| Sales revenue | $5,000 |
An asset increases on Acme's balance sheet.
Buyer: Bright books AP
| Account | Debit | Credit |
|---|---|---|
| Inventory (or expense) | $5,000 | |
| Accounts payable | $5,000 |
A liability increases on Bright's balance sheet.
The identical $5,000 is an asset to one company and a liability to the other. When Bright pays, the entries reverse: Acme debits cash and credits AR; Bright debits AP and credits cash. Here is how the two accounts compare across every dimension that matters.
| Dimension | Accounts receivable | Accounts payable |
|---|---|---|
| What it is | Money customers owe you | Money you owe suppliers |
| Balance sheet | Current asset | Current liability |
| Cash flow | Cash coming in | Cash going out |
| Normal balance | Debit | Credit |
| Created when | You invoice a customer | You receive a supplier bill |
| Key KPI | Days sales outstanding (DSO) | Days payable outstanding (DPO) |
| Team goal | Collect faster | Pay on time, not early |
Because AR controls incoming cash and AP controls outgoing cash, best practice is to keep them separate. Letting one person record both creates a segregation-of-duties gap that raises fraud and error risk. Small teams that cannot fully separate the roles should add compensating controls, such as manager review of every payment and receipt above a set threshold.
What is the difference between accounts receivable and accounts payable?
Accounts receivable is money owed to you by customers and sits under current assets; accounts payable is money you owe to suppliers and sits under current liabilities. Every credit sale creates a receivable for the seller and a payable for the buyer, so they are mirror images of one transaction. AR brings cash in; AP sends cash out.
Can AP and AR be done by the same person?
Best practice says no. Combining accounts payable and accounts receivable in one person concentrates control over both incoming and outgoing cash, which violates segregation of duties and raises the risk of fraud or undetected error. Very small teams that cannot separate the roles should add compensating controls, such as manager approval of all transactions over a threshold and independent bank reconciliation.
Source: AccountingTools, separation of dutiesWhat are the 3 types of account?
Under the traditional golden-rules approach there are three: personal accounts (people and entities, including customers and suppliers), real accounts (assets and property), and nominal accounts (income, expenses, gains, and losses). Accounts receivable and accounts payable are both personal accounts in this model. Modern US teaching instead uses five elements: assets, liabilities, equity, revenue, and expenses.
Source: HighRadius, three golden rules of accountingWhat is the difference between AP and AR accounts?
An AP account tracks what you owe vendors: it is credited when you receive a bill and debited when you pay. An AR account tracks what customers owe you: it is debited when you invoice and credited when they pay. AP carries a normal credit balance and lives under liabilities; AR carries a normal debit balance and lives under assets.
Do I send invoices to AP or AR?
If you are the vendor billing a customer, you send your invoice to their accounts payable department, which processes and pays it. Your own accounts receivable function is what generates and issues that invoice in the first place. The memory aid is "AR sends, AP pays": your AR creates the bill, their AP settles it.
Source: NetSuite, AP vs ARWhat are the 5 C's of accounts receivable management?
They are the five C's of credit, used to decide whether to extend terms to a customer before they ever become a receivable: Character (payment track record), Capacity (ability to pay), Capital (financial reserves), Collateral (security available), and Conditions (the wider economic and deal context). Strong credit vetting up front is the cheapest way to keep AR healthy.
Source: Corporate Finance Institute, the 5 C's of creditWhat is the 10 rule for accounts receivable?
The cross-aging "10% rule": if more than 10% of a customer's total receivables are overdue (typically past 90 days), the whole account is reclassified as high-risk, not just the overdue portion. It is widely used by lenders when calculating a borrowing base, and as a credit-control trigger for tightening terms on a slow-paying customer.
Source: Emagia, the 10 rule for accounts receivableWhat is the best KPI for accounts receivable?
Days sales outstanding (DSO) is the most widely used AR KPI, because it shows in plain days how long it takes to convert credit sales into cash. It is best paired with the collection effectiveness index (CEI), where 80 to 90% or higher is strong, and your AR aging profile. On the AP side, the equivalent headline KPI is days payable outstanding (DPO).
Source: ApprovalMax, accounts receivable KPIsWhat is CRM in accounts receivable?
"CRM" has two meanings in an AR context. It can stand for Collections (or Credit) Risk Management, the discipline of scoring and prioritizing customers by likelihood of late or non-payment. More loosely, it refers to using Customer Relationship Management data (contacts, payment history, and communication logs) to personalize collections outreach. Both uses point the same way: better customer data leads to faster, friendlier collections.
For completeness, since these questions often appear together: the common four types of CRM are operational, analytical, collaborative, and strategic. SAP is primarily an ERP that also offers CRM modules, so it is both depending on which product you use. The so-called seven pillars of CRM typically cover strategy, people, process, technology, data, customer experience, and measurement. None of these change how AR is recorded; they describe the tools and approach used to manage the customer relationship behind each receivable.
Last updated June 9, 2026. This guide is general information, not accounting, tax, or financial advice.