Andreea Bosca

Accounts Payable (AP) is the total amount a company owes to its suppliers and creditors for goods and services purchased on credit and not yet paid. AP appears on the balance sheet as a current liability, representing short-term obligations due within one year.

Accounts Receivable (AR) is the total value of invoices a company has issued to customers for goods or services delivered but not yet paid. AR appears on the balance sheet as a current asset because payment is expected within one year. It represents a legal obligation from the customer and is recorded when an invoice is issued, not when cash is received. Tracking AR accurately gives finance teams a real-time view of money owed and helps forecast cash flow.

Current assets reflect a company’s assets on the Balance Sheet or Statement of Financial Position and are easily liquidated or converted to cash within one year. Companies often use current assets in conjunction with current liabilities to calculate different liquidity ratios. Some common accounts that fall under current assets are cash and cash equivalents, accounts receivable, prepaid expenses, trade receivable, and many others depending on industry.

Current liabilities reflect a company’s short term debt on the Balance Sheet or Statement of Financial Position. This debt is short term and must be paid within a year. It's important for a company to identify current liabilities in order to understand their financial solvency, often this is done in conjunction with current assets. Some common accounts that fall under current liabilities are accounts payable, deferred revenue, interest payable, short-term debt, dividend payable, and many others depending on industry.