Accounts Payable vs General Ledger – Difference and Comparison

What is Accounts Payable?

In every organisation, Accounts Payable is a standard transaction that takes place. Regular payment for goods, raw materials, and services are not possible in large corporations because of the nature of their operations. All of these payments are made following the organisation’s billing schedule. Generally speaking, Accounts Payable in General Ledger represents the amount due by the company to its raw material suppliers, goods vendors, and other third parties, among other parties.

Customers get invoices recorded in their books of accounts by suppliers, allowing the operator to operate on a credit basis. For businesses, these payments are often seen as short-term debt. According to the agreed-upon payment period, the organisation must clear the outstanding balance.

Account Payable is closed out by transferring the entire amount to General Ledger, which will be finalised later on in the Balance Sheet process. Companies used sophisticated software such as SAP or tally to conduct these transactions. Accounts Payable is a type of current liability that appears on financial statements and is categorised as such.

Please consider the following example: A firm purchases garments to create coats worth $50. In addition, the raw material company sends a bill for $50 that must be paid within 60 days after receipt of the invoice. To be recorded under the heading Accounts payable, this $50 payment must be made within 60 days of the date of receipt of this entry.

What is General Ledger?

The phrase “General Ledger” refers to a section of financial accounting that keeps track of all transactions that take place across several sub-headings and categories. General Ledger is responsible for allocating entries from various ledgers into liabilities, assets, or equity, depending on the nature of the transaction in question. The accounting software carries out these key responsibilities that the organisation employs.

When a transaction occurs, it is based on the phenomenon of the dual effect, which states that if one account is debited, the other must be credited. The journal, which identifies the source of every transaction and the effects that follow, is used to describe these two impacts of the transaction in detail.

In layman’s terms, it is the total amount of all separate ledgers added together. Under General Ledger, several different heads are formed, including creditors, debtors, current accounts, payables, and receivables. The trial balance is generated following the results of General Ledger to finalise the Balance Sheet as of the date to portray a clear picture of the company’s finances.

Consider the following scenario to understand better General Ledger: A company receives an amount of $100 from a buyer on the sale of items. This transaction will result in a $100 raise in its assets and a $100 drop-in account receivable. General Ledger accomplished its accounting work due to this obvious result.

Difference Between Accounts Payable and General Ledger

  1. Accounts Payable treats only one sort of entry, while General Ledger treats many types of entries.
  2. Reference: Accounts Payable entries exclusively deal with the company’s creditors, whereas entries in General Ledger include information on both its creditors and its debtors.
  3. General Ledger has more information than Accounts Payable, which is more condensed.
  4. After Accounts Payable, General Ledger, and Trial Balance are completed, their respective outputs are merged.
  5. It is impossible to produce a balance sheet using Accounts Payable; on the other hand, a general ledger can prepare a balance sheet.

Comparison Between Accounts Payable and General Ledger

Parameters of ComparisonAccounts PayableGeneral Ledger
IndicatesAccounts Payable keeps track of every transaction that involves the transfer of monies out of the company.The general ledger keeps track of all cash outflows and inflows, as well as all other types of transactions.
TypesAccounts Payable is a Subsidiary Ledger in the accounting system.This is a Head Ledger that contains Accounts Payable and other closely linked accounts.
PurposeThe Accounts Payable Ledger is responsible for keeping track of the payments made by the corporation or firm.The goal of General Ledger is to keep track of every transaction within the firm.
SystemBoth double-entry and single-entry accounting systems include accounts payable.General Ledger is only used in conjunction with the Double-entry method.
WorkingIn General Ledger, the total amount of Accounts Payable associated with a particular account is recorded.General Ledger collects the total amount from each sub-heading to produce the final result.

References

  1. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/abaj76&section=50
  2. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/abaj76&section=224