Accounts Payable vs. Unearned Revenue — What's the Difference?
By Tayyaba Rehman — Published on October 22, 2023
Accounts Payable represents amounts owed by a company for goods or services received, while Unearned Revenue denotes payments received before delivering goods or services.
Difference Between Accounts Payable and Unearned Revenue
Table of Contents
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Key Differences
Accounts Payable and Unearned Revenue: Accounts Payable refers to the amounts a company owes to its suppliers or vendors for products or services already received, but not yet paid for. In contrast, Unearned Revenue represents the money a company receives for goods or services that it has yet to provide.
Financial Statement Representation: On the balance sheet, Accounts Payable is recorded as a current liability, indicating an obligation to pay. Unearned Revenue, meanwhile, is also listed as a liability because it signifies an obligation to deliver products or services in the future.
Nature of Transaction: While Accounts Payable arises from purchases on credit, Unearned Revenue stems from advance payments made by customers.
Impact on Cash Flow: When Accounts Payable is settled, there's a cash outflow for the business. On the other hand, Unearned Revenue results in a cash inflow, but there's an expectation of future delivery of goods or services.
Duration and Recognition: Accounts Payable is recognized and settled typically within short durations, like 30, 60, or 90 days. Unearned Revenue can stretch over longer durations, depending on when the promised goods or services are to be delivered.
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Comparison Chart
Definition
Amounts owed for received goods/services
Payments received before delivering goods/services
Type
Liability
Liability
Origin
Purchases on credit
Advance payments from customers
Cash Flow Impact
Cash outflow when settled
Cash inflow upon receipt, obligation to deliver later
Recognition Duration
Typically short-term (e.g., 30-90 days)
Can be short to long-term depending on delivery timing
Compare with Definitions
Accounts Payable
Short-term liabilities from credit purchases.
The CFO reviewed the Accounts Payable before planning the monthly payments.
Unearned Revenue
Liabilities representing prepayments from customers.
The annual memberships created substantial Unearned Revenue for the gym.
Accounts Payable
Amounts a company owes for received products or services.
The company's Accounts Payable increased after bulk ordering office supplies.
Unearned Revenue
Future obligations arising from advance payments.
The theater has an Unearned Revenue account to track prepaid ticket sales.
Accounts Payable
Unpaid bills for transactions on credit.
To maintain a good credit rating, they always cleared their Accounts Payable promptly.
Unearned Revenue
Revenue to be recognized in future accounting periods.
Upon delivering the software update, the Unearned Revenue will be recognized as actual revenue.
Accounts Payable
Obligations to vendors for goods or services.
The Accounts Payable department ensures timely payments to suppliers.
Unearned Revenue
Income received but not yet earned.
The advance booking of the hall resulted in a surge in Unearned Revenue.
Accounts Payable
Outstanding amounts for which a company is liable.
To assess liquidity, the analyst examined both cash reserves and Accounts Payable.
Unearned Revenue
Payments received before goods/services are provided.
The magazine's subscription fees contributed to its Unearned Revenue.
Common Curiosities
What is Accounts Payable?
Accounts Payable is money owed by a company to its suppliers for goods or services received but not yet paid for.
How is Unearned Revenue different from Accounts Payable?
While Accounts Payable represents amounts owed, Unearned Revenue signifies payments received before goods or services are delivered.
Is Unearned Revenue considered an asset?
No, Unearned Revenue is a liability since it represents future obligations to deliver goods or services.
Why is Accounts Payable considered a liability?
It represents amounts the company owes, making it a financial obligation or liability.
How does Unearned Revenue impact cash flow?
Unearned Revenue increases cash flow when received but indicates a future obligation to provide goods/services.
Can Unearned Revenue last more than a year?
Yes, if the delivery of the associated goods/services extends beyond a year.
When is Accounts Payable typically settled?
Usually within short durations like 30, 60, or 90 days after the invoice date.
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Written by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
