A:

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

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.

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