Mastering Accounts Payable vs. Expenses in QuickBooks Online

Managing expenses and accounts payable (AP) correctly in QuickBooks Online (QBO) is crucial for maintaining accurate financial records. However, many users struggle to distinguish between the two, leading to incorrect financial reports and potential cash flow issues. Let's break it down and clarify the differences.

Understanding the Difference

What Are Expenses?

Expenses are costs incurred and paid immediately. These transactions decrease your income and reflect day-to-day spending.

Example: Paying a utility bill at the time of service.

How to Record in QuickBooks Online:

1. Go to + New > Expense.

2. Select the payment account.

3. Enter the vendor name and expense details.

4. Click Save and Close.

What Is Accounts Payable?

Accounts Payable refers to money your business owes to vendors or suppliers for services or goods received but not yet paid for. These transactions are recorded as liabilities until payment is made.

Example: Receiving an invoice from a supplier with a due date in 30 days.

How to Record in QuickBooks Online:

1. Go to + New > Bill.

2. Enter the vendor details and bill amount.

3. Select the due date and expense category.

4. Click Save and Close.

Common Mistakes and How to Fix Them

1. Recording Bills as Expenses Instead of Accounts Payable

Problem: Users mistakenly categorize invoices as expenses instead of bills, which results in missing liabilities on reports.

Solution: If you haven’t paid yet, use “Enter Bill” instead of an expense.

2. Paying Bills Without Recording Them in AP

Problem: Some businesses pay vendors directly without logging the bill, leading to missing transactions in AP.

Solution: Always record bills first before marking them as paid in QBO.

3. Ignoring the Accounts Payable Aging Report

Problem: Without checking AP reports, overdue payments may go unnoticed.

Solution: Regularly review the Accounts Payable Aging Report under Reports to track outstanding bills.

Best Practices for Managing Accounts Payable and Expenses

1. Use Bills for Delayed Payments: Any transaction with a due date should be entered as a bill to ensure proper tracking.

2. Pay on Time: Set reminders for due dates to avoid late fees and maintain vendor relationships.

3. Match Transactions: Reconcile bank transactions with recorded expenses and AP entries to avoid duplicates or missing payments.

4. Use Reports: Run the Profit and Loss Report for expense tracking and the Accounts Payable Aging Summary for outstanding liabilities.

Final Thoughts

Understanding the difference between expenses and accounts payable in QuickBooks Online ensures accurate financial reporting and better cash flow management. By following the best practices above, you can avoid errors, streamline bookkeeping, and keep your business finances in check.

Need additional help? Consult Trusty Ledger Bookkeeping at info@trusty-ledger.com for expert guidance!