What distinguishes accounts payable from accounts receivable?

Accounts payable and accounts receivable are fundamental concepts in accounting that reflect different aspects of a company's financial activities. The distinction lies primarily in the nature of the transactions involved.

Accounts payable represents a company's obligations to pay money to its suppliers or creditors for goods or services received but not yet paid for. This means that the company has incurred a liability that it is responsible for settling, which impacts its cash flow and indicates the company’s short-term debts.

On the other hand, accounts receivable refers to amounts that a company is owed by its customers for goods or services that have been delivered but not yet paid for. This represents an asset for the company, as it anticipates receiving cash inflows in the future based on these outstanding invoices.

By understanding this distinction, one can better grasp how a company's financial health is assessed through its obligations (accounts payable) and its expected cash inflows (accounts receivable), contributing to overall liquidity management.