Lumpsum transactions are part of every business, but the happen very frequently. In some cases, payments are put on hold. This type of entry needs to be recorded to avoid any ambiguity in the future.
All these transactions are carried over into accounting that becomes part of the General ledger. When deferred to be paid in the future is recorded as Accounts Payable.
Key Takeaways
- “Accounts payable” tracks money owed by a company to its suppliers for goods or services received.
- The general ledger is a company’s primary accounting record, consolidating all financial transactions.
- Both are essential components of a company’s accounting system, with accounts payable being a subset of the general ledger.
Accounts Payable vs General Ledger
Account payable (AP) records only the transactions related to vendor payments, while General Ledger (GL) records all company financial transactions. AP is a sub-ledger of the GL used to track the details of specific transactions. AP is a liability account, while GL contains both assets and liability.
Accounts Payable refers to the debt owned against vendors, and suppliers for the short term and long time.
In general, it is an extension period provided by the firm’s creditor for payment of a certain amount in the upcoming time. The payment period in Accounts Payable is a 30, 60, or 90 days cycle.
General Ledger refers to an accounting tool used to verify sub-ledger, accounts, audits, and reporting. All the financial data is maintained in the company’s General ledger in which every debit-credit transaction is specified aptly.
It is adopted by the business running on a double-entry system of accounting.
Comparison Table
| Parameters of Comparison | Accounts Payable | General Ledger |
|---|---|---|
| Indicates | Every outgoing transaction regarding payments of funds is recorded in Accounts Payable. | The purpose of a General Ledger is to record every transaction of the company. |
| Types | Accounts Payable is a Subsidiary Ledger. | General Ledger is a Head Ledger consisting of Accounts payable. |
| Purpose | The purpose of the Accounts Payable Ledger is to record the payment outflows of the company or firm. | The Accounts Payable is a part of both Double and Single-entry systems. |
| System | The Accounts Payable is a part of both Double as well as Single-entry systems. | General Ledger is a part of the Double-entry system only. |
| Working | The aggregate amount of Accounts payable is carried over to the General ledger. | General Ledger collects the aggregate amount from each sub-heading for final output. |
What is Accounts Payable?
Accounts Payable is a standard transaction that takes place in every organization. As in significant companies,, regular payment for goods, raw materials, and and services is impossible. These payments are made as per the payment cycle of the organization.
The amount the company owes against the raw material supplier, goods vendor, and other third parties is recorded under the heading Accounts Payable in General Ledger.
Suppliers create invoices, and receivers record them in their books of accounts. Meanwhile, the business goes on a credit basis.
These payments are considered short-term debt for companies. The organization is obligated to clear the due amount per the mutually decided payment period.
The total amount of Account Payable is transferred to the General ledger at the end to finalize the Balance Sheet later. These transactions took place in companies through advanced software like SAP or Tally.
In Finacial statements, the Accounts Payable come under the heading of Current liabilities.
For better understanding- A company buys clothes for making Coats worth $50, and with this raw material company also handed over an invoice to pay $50 within 60 days.
This payment of $50 is to be made within 60 days,, and the entry shall be recorded under the heading Accounts Payable.
What is General Ledger?
The term General Ledger is part of financial accounting that records all transactions taking place throughout different sub-headings.
General Ledger allocates entries from different ledgers into liabilities, assets, or equities as per the nature of the transaction. These major tasks are performed according to the accounting software used by the company.
It works on the phenomenon of the dual effect of each transaction: if one account is debited, the other must be credited.
These dual effects of the transaction are termed as the journal that defines the source of every transaction and its subsequent effects.
In layman’s language, it is the lump sum of every individual ledger. Various heads are created under the General Ledger consisting of creditors, debtors, current accounts, payables, and receivables.
As per the outcome of General Ledger, the trial balance is prepared for finalizing the Balance Sheet as of date to depict a clear picture of the company’s accounts.
For a better understanding of General Ledger, Suppose a Company receives $100 from the buyer on the sale of goods.
This transaction will increase the company’s assets by $100 and decrease the account receivable by $100. With this apparent effect, General Ledger completed its task in accounting.
Main Differences Between Accounts Payable and General Ledger
- Treatment: In Accounts Payables, only a single type of entry is treated, whereas in General Ledger, multiple entries are treated.
- Reference: The entries of Accounts Payable are only referred to the creditors, whereas entries in General Ledger are concerned with creditors and debtors of the company.
- Information: The information in Accounts Payable is limited, whereas the information in General Ledger is comprehensive.
- Output: The output of Accounts Payable becomes part of General Ledger, and the output of the General Ledger becomes part of Trial Balance.
- Balance Sheet: One cannot prepare the Balance Sheet with the help of Accounts Payable on the contrary Balance sheet can be prepared with the help of a General Ledger.
- https://www.emerald.com/insight/content/doi/10.1108/MAJ-10-2014-1117/full/html
- https://heinonline.org/HOL/LandingPage?handle=hein.journals/abaj76&div=50&id=&page=
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It’s great to see detailed content like this. It enriches the understanding of complex accounting practices, and the real-world examples provided are very helpful.
This article provides an excellent comparison between accounts payable and general ledger. It effectively captures the nuances and importance of both aspects in accounting.
This is very informative, all aspects of accounts payable and general ledger are covered. How do you think modern accounting software has impacted these processes?
Absolutely! Modern accounting software has made these processes much easier and accessible, allowing for better analysis and decision-making.
Great question! I believe modern accounting software has streamlined processes, making AP and GL management more efficient, and accelerated financial reporting.
I’m impressed by the level of detail and explanation provided. It’s clear and easy to understand.
The writer employs a clear and concise writing style combined with a great depth of knowledge in the field of accounting to explain these concepts. Exceptional work.
Excellent exposition of how Accounts Payable vs General Ledger. Assets and Liabilities are well described. Thanks.