What is the difference between accounts payable and accrued expenses payable?

Answer 1

Hi Kenzie,

Good question and definitely a confusing concept.

The difference between the two items is usually whether an invoice has been received or not. If an invoice has been received, a company will generally record a Credit to Accounts Payable.

I like to think of an Accrual as a placeholder. If an invoice has not yet been received, but the company knows the exact amount or has an estimate of the amount they will have to pay a vendor, they will "Accrue" for the expense and Credit an Accrued Expenses Payable account.

Here is an example which may help to further clarify:

ABC company hired an accounting consultant from XYZ Consultants at a rate of $150/hour for a total of 10 hours. If XYZ has not yet provided ABC company with an invoice, but ABC wants to make sure they are correctly recording the expense in the proper period, ABC may record the following entry:

DR Consulting Expense $1,500

CR Accrued Expense Payable $1,500

Once ABC receives the actual invoice from XYZ they will book the following entry to move the Accrued Expense Payable into Accounts Payable:

DR Accrued Expense Payable $1,500

CR Accounts Payable $1,500

I hope this helps!

Best,

Orlando