There is a big difference between payable and expense, but business owners often get them confused. Payables are amounts that the company owes to others, such as wages, rent, and utility bills. Expenses, on the other hand, are costs that the company incurs in order to generate revenue. Understanding these differences is important for business owners who want to keep track of their finances and stay in good standing with their creditors.
What is Payable?
Payable is a term that is used in accounting and refers to the total amount of money that a company owes to its creditors. This can include money that is owed for goods or services that have been received, as well as money that is owed for expenses such as rent or utilities. Payable is different from receivable, which refers to the total amount of money that a company is owed by its customers. Payable is typically recorded as a liability on a company’s balance sheet, while receivable is typically recorded as an asset.
What is Expense?
Expense refers to the cost incurred in generating revenue. Operating expense, also called operating cost, refers to the expenses that are necessary for running a business on a day-to-day basis. It includes both direct costs, such as raw materials, and indirect costs, such as labor. Expenses can also be classified according to their function within the business, such as sales and marketing expenses, or research and development expenses. Typically, businesses aim to minimize their expenses in order to maximize their profits. Therefore, they may use various cost-cutting strategies, such as outsourcing or automation. In accounting, an expense is typically recorded as a debit to the Expense account and a credit to either the Cash account or Accounts Payable account.
Difference between Payable and Expense
Payables are obligations to make payments for goods and services that have been received, but for which have not yet been paid. Payables arise when a company purchases goods or services on credit from suppliers. Accounts payable is the amount owed to suppliers for goods and services that have been received, but have not yet been paid. Payables are recorded as liability accounts on the balance sheet.
Expenses are costs incurred in order to generate revenue. Expenses are typically recorded as an operating expense on the income statement. Operating expenses include the cost of raw materials, sales commissions, rent, utilities, and other general and administrative expenses.Non-operating expenses include interest expense and taxes. Some expenses, such as depreciation and amortization, are recorded as adjustments to net income rather than as operating expenses. Depreciation is a non-cash expense that reflects the wear and tear of a long-term asset over time, while amortization represents the writing off of intangible assets such as patents and copyrights.
Conclusion
The main difference between a payable and an expense is that a payable is an obligation to pay money in the future, while an expense is an event that has already occurred and resulted in a decrease in cash. Knowing the difference between these two terms can help you better understand your company’s financials and make more informed decisions about your business’ finances.
