Accounts Payable vs Accounts Receivable: Examples and Aging Checks

Accounts receivable is money customers owe the business. Accounts payable is money the business owes suppliers. The same invoice can therefore be a receivable for the seller and a payable for the buyer. Start by identifying whose books you are reading, not just whether a document says “invoice.”

These balances help explain why sales, expenses and bank movements occur at different times. This guide uses original Canadian-dollar examples without sales taxes or foreign currency. Real ledger balances must include the amounts and tax treatment actually posted; these illustrations are not tax calculations.

1. Establish who owes whom

When a design studio completes work and invoices a customer on credit, the studio normally records a customer receivable with the appropriate revenue entry. When it receives an unpaid supplier bill for an incurred expense, it records a payable with the appropriate expense or asset entry. Recognition still depends on the underlying facts and accounting policy.

A receivable is usually an asset, a resource the business controls. A payable is usually a liability, an amount the business owes. Neither is the bank balance. A customer deposit, employee reimbursement or loan may need a different account. Do not put every amount involving someone else into customer or supplier accounts.

Keep customer and supplier identities distinct even if a company appears in both lists. Offsetting what it owes against what you owe requires an appropriate basis and review; identical display names are not evidence that two balances should be netted.

2. Calculate two original closing balances

Suppose opening customer receivables are $4,200. New credit invoices add $2,600, customer collections reduce the balance by $3,500, and approved credit notes reduce it by $200. Closing receivables are $3,100. A collection settles an existing balance; it does not automatically create another sale.

Illustrative balance roll-forwards — CAD

Movement	Receivables	Payables
Opening balance	$4,200	$2,700
New invoices / bills	+$2,600	+$1,800
Collections / payments	−$3,500	−$2,200
Approved credits	−$200	−$100
Closing balance	$3,100	$2,200

Check the documents behind each total. A credit reduces an amount owed. Do not apply one supplier’s credit to an unrelated supplier just to reach a chosen balance. An unapplied payment is money received but not yet matched to an invoice. Investigate it even if the control account, which holds the combined customer balances, looks reasonable.

3. Read the aging basis before the buckets

An aging report divides open items into time bands. Confirm the report date and whether aging uses invoice dates or due dates. These are not interchangeable. In an overdue-by-due-date report at July 31, an invoice due June 30 is 31 days overdue; one due July 31 is not yet overdue. A different report convention can produce different labels.

Review current, 1–30, 31–60, 61–90 and older bands only after confirming the software's definitions. Check partial payments and credits against the original invoice, rather than assuming every negative line is an error. Future-dated items should not quietly enter a prior-period snapshot.

Prioritize by both age and significance. A large disputed balance needs a different response from a small recently paid invoice whose receipt has not been applied. Document the reason, next action, responsible person and expected follow-up date.

4. Reconcile detail to the ledger

Compare the customer details with the total receivables account in the ledger, your full accounting record. Use the same date for both, then repeat for suppliers. Check entries made directly to the total accounts, payments no longer matched to invoices, transactions not yet recorded and different report filters. Explain any difference. Do not add a balancing line without proof.

• Match receipts to invoices using identity and reference, not amount alone.
• Check supplier invoice numbers for duplicate imports or repeat entry.
• Investigate old credit balances and unapplied cash.
• Compare disputed items with correspondence and approved adjustments.
• Save the report date, filters and explanation for significant differences.

If a correction changes a closed period, use the authorized reopening or adjustment process and review its effect on later reports. Preserve the audit trail instead of deleting evidence to make the age profile look cleaner.

5. Turn balances into careful follow-up

For receivables, confirm that the invoice reached the right contact and that any dispute is understood before sending repeated reminders. For payables, verify the supplier, approval, due date and payment instructions through trusted procedures. A bill in the ledger is not by itself authorization to pay it.

Separate bookkeeping from operational decisions. Writing off a customer balance, changing credit terms, holding a supplier payment or accepting new bank details can require management approval and additional safeguards. Never send account information or client financial documents to the wrong contact just because two names look alike.

Cash planning can use expected collections and payments, but a due date is not a guaranteed cash date. Make assumptions visible and keep disputed or uncertain amounts distinguishable from confirmed settlements.

6. Keep the accounting and coordination linked

Keep invoices, payment matches and accounts payable/accounts receivable (AP/AR) reports in your accounting system. Bookwits can help coordinate client requests, follow-up tasks and supporting documents for the team. It is not presented as the system for recording customer balances or paying suppliers.

A useful handover states the entity, report date, total, oldest significant items and the exact action required. Link an approved report rather than copying sensitive account details into broad comments. Next month, check whether the promised action actually changed the relevant item, not merely whether somebody ticked a task.