In financial accounting, revenue entries are made in the general ledger whenever a business receives, or expects to receive, money from an outside source. Examples of revenue sources include sales, fees, commissions and investment returns. Accounts payable is used to keep track of expected cash outflows, not inflows, and is therefore not counted towards business revenue. Rather, accounts payable keeps track of credit expenses as they are incurred.

Accounts Payable and Receivable

Payables and receivables describe short-term payment obligations. Payables are those accounts for which the company has a payment obligation. Conversely, receivables are accounts on which the company expects to collect.

Revenue is only increased when receivables are converted into cash inflows through a collection. Expenses are increased when payable obligations are fulfilled through cash outflows. Bookkeepers track these figures so that investors and lenders have a more accurate understanding of a company's present financial condition.


Revenue represents the total income of a company before deducting for expenses. Revenue turns into profit when it is earned efficiently. Companies that are looking to maximize profits want to increase their receivables and decrease their payables, or at least seek a more favorable relationship between the two.

Typically, businesses that practice accrual-based accounting add the balance of accounts receivable to total revenue when building the balance sheet. Even if the cash hasn't been collected yet, receivables still represent cash inflows when analyzing financial health.

The obligations documented in the accounts payable subsidiary ledger represent claims against revenue by other parties. When a business makes a purchase on credit, it records the transaction as a payable. The creditor is then entitled to future payment from the company, and that payment needs to come from revenue generated through other activities.

  1. Are accounts payable an expense?

    Learn about how to differentiate between liability accounts and expense accounts, and see why accounts payable is considered ... Read Answer >>
  2. What is the difference between accrual accounting and accounts payable?

    Understand the difference between accrual accounting, an accounting method, and accounts payable, which is a ledger entry ... Read Answer >>
  3. What is the difference between an accrual and an account payable?

    Understand the difference between an accrual and an account payable. Learn how an accrual and an account payable affect a ... Read Answer >>
  4. What's the difference between accrued expenses and accounts payable?

    Learn how companies use accrued expenses and accounts payable on their balance sheet and the difference between the two liabilities. Read Answer >>
  5. Do dividends go on the balance sheet?

    Learn about dividends and which accounts on a company's balance sheet they affect, such as cash, shareholders' equity and ... Read Answer >>
  6. What sorts of factors increase cash flow from operating activities?

    Find out what factors lead to an increase in cash flows from operations. Learn about sources of cash, uses of cash and how ... Read Answer >>
Related Articles
  1. Investing

    Dynamic Current Ratio: What It Is And How To Use It

    Learn why this ratio may be a good alternative to the current, cash and quick ratios.
  2. Investing

    Company Survival: Cash Conversion Cycle Is Key

    Find out how to use this figure to analyze a firm's financial condition.
  3. Investing

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  4. Investing

    Cash Flow on Steroids: Why Companies Cheat

    Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it.
  5. Investing

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  6. Investing

    What Is a Cash Flow Statement?

    The Cash Flow Statement measures whether a company generates enough cash to meet its operating expenses.
  7. Investing

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  1. Accounts Payable Turnover Ratio

    A short-term liquidity measure used to quantify the rate at which ...
  2. Bills Payable

    Bills payable is a synonym of accounts payable, or short-term ...
  3. On Account

    On account is an accounting term that denotes partial payment ...
  4. Days Payable Outstanding - DPO

    Days payable outstanding measures how long it takes a company ...
  5. Current Liabilities

    A company's debts or obligations that are due within one year. ...
  6. Adjunct Account

    An account in financial reporting that increases the book value ...
Hot Definitions
  1. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  2. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  4. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  5. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  6. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
Trading Center