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Maintenance receipt format for R&D

hi everyone welcome back to sahab academy today in this video we are going to understand what do you mean by receivables and payables in accounting what is the difference between these two and how do we treat them in the books of accounts okay so let's start the video and let's understand that now first let's take this beautiful example to understand the concept of receivables and payables believe me it's really simple let's say for example you have a pharmacy business and whatever i'm going to say right now please think this from the point of view of pharmacy only okay from the business point of view all right so let's start so now what's happening over here is first thing is you have made a credit purchase from your supplier so what does that mean credit purchase see credit purchase is also known as purchasing on account so we also don't know that so it's really simple you have purchased supplies medicines from your supplier in this box but you did not pay anything to your supplier you have promised to your supplier that you will pay after a certain period of time for example let's just say your supplier told you okay uh you know mr let's just say rohit pay me after 30 days after 30 days so this 30 days is the credit period okay after 30 days you have to pay you can also pay within 30 days but if your supplier has told you you know 30 days then you will pay right after 30 days isn't it yes so that's what will happen okay that's a credit purchase now you have not paid him anything immediately okay fine and then what happened was right after this a customer came to your shop and bought some medicines but while making the payment she promised you to pay after a certain period of time again here also a credit comes into the picture you are giving credit to the customer which means you are selling the medicines to her on credit yeah she is promising to you that she will pay after 15 days is that clear so that's credit sale credit purchase happened and credit sale happened now in both of these transaction there was no cash flow only promises isn't it only promises you promise to pay after 30 days she promised to pay you 15 days after 15 days isn't it no cash flow so if there is no cash flow then of course there is some obligations over here isn't it you have an obligation present financial obligation to pay to your supplier isn't it to pay you have to pay okay you haven't paid you have to pay right and here in this case in this case you have a benefit you have a benefit isn't it after some time you will receive money from your customer okay so customer will have a present financial obligation but from your point of view from your point of view you will have a benefit okay future benefit isn't it so that is why this is your receivables and this is your payables you're going to receive the money and here you have to pay the money fine so that's what basically is whatever money you have to receive from any third party whatever the reason is that's called receivables and whatever money you have to pay to any third party that's called payables is that clear simple and straightforward this is receivables this is payables to be exact you can say accounts receivable accounts payable now they also have different different names see here account receivable is also known as trade receivables data and just ar account receivables only and accounts payable is also known as trade payables creditors and ap is that clear simple now account receivable is an asset because you have a benefit over here isn't it future benefit is there future economic benefit to be exact and here you have a present financial obligation you have to pay you are losing something isn't it you have a present financial obligation so this is a liability and to be technical in the balance sheet you know account receivable will be a current asset and accounts payable will be a current liability why is that so because you are going to receive the money within 12 months and here you will have to pay the money within 12 months so it's a short-term liability and short-term asset so that's why it's a current asset and this is a current liability is that clear so that's what basically receivables and payables are now if you want to you know understand the definition property let's see the definitions over here here the meaning properly account receivable is a current asset account that keeps track of money that third parties yeah third parties any third party it can be a customer it can be a bank it can be any other company or any other person from whom you have to receive the money okay have to i'm not saying you have received no no if you have received money then they are no longer receivables you have to have to you are supposed to okay so that's the case here that third part is o to you now this is a bit technical okay that's why i have taken this simple language you have to receive simple and straightforward now this oh and all become little bit confusing okay so you can understand that's here account receivable is a current asset account that keeps track of money that third parties owe to you they owe to you you have to receive is that clear right these third parties can be banks companies or customers who have bought goods on credit from you which basically also means you have sold goods to them right okay come to the payables meaning and definitions here accounts payable is a current liability account that keeps track of money that you owe to any third party that you owe to any third partier you have to pay you have an obligation you have to pay whereas in receivables you have to receive yeah you have a future economic benefit is that clear the third parties can be banks companies or even someone from whom you have borrowed money from yeah in all these cases what is happening you have to pay yeah if you have borrowed money from someone then immediately you have a present financial obligation see after certain time period you have to pay me back yeah that person will tell you so immediately you will have a present financial obligation to repay to repay is that clear simple and straightforward now let's get to the accounting perspective of this yeah how the accounting will happen of these transaction let's see that the journal entries i mean now here we have the general entries that we have to pass in the pharmacies books it's really simple and straightforward first what happened first we made a credit purchase so what's the general entry over here for the credit purchase it's really simple see understand think which two accounts are impacted because of credit purchase first is you have purchase medicines that is meant for resale so of course purchase account will come into the picture your purchase account is increasing yes so whenever expense increases your purchase account is an expense account whenever purchase account expense account increases you have to debit that so purchase account will be debited and then and then what's the next account the next account is the supplier account you have purchase from supplier now you haven't paid anything so cash account will not come into the picture there is no cash flow you have promised to pay to supplier your supplier is liability you have to pay to supplier so that is why the second account which you have to take is supplier account or you can also take the name of the company pharmaceutical let's just say b and pharmaceutical then that will come or maybe you can also take payables account or you can say account payables account or you can take creditors account different names are there don't worry in different books different name will be there in different companies different name will be there like that okay some companies may call it rate payable some companies may just just call it payables like that or credit dollars is that clear simple and straightforward so the general entry would be purchase account debit to supplier account expense increase you debited the purchase account and here liability increase you credited the supplier account you can also take over here payables uh what do you say creditor yeah or the name of the company from whom you have purchased on credit like that is that clear okay and then after 30 days what happened let's just say you have paid your supplier you have paid your supplier on the due date so if that's the case then what you will do you will cancel the supplier account understand if you have made the payment then there is no more financial obligation you have to cancel the liability here you recorded the liability you have to pay 50 000 to your supplier you credited the supplier account yeah you credited the supplier account you increase the liability but after 30 days you have paid off the supplier then the liability will decrease you have to you will have to debit the supplier account supplier account debit or if you had taken payables over here payables account then payables account will be debited okay you will just cancel in accounting how do you cancel things you cannot just put across and cancel no you will have to play with debits and credits if there is a credit over here you have to make an equal debit to cancel it here it was uh credited 50 000 you have to make an equal debit of 50 000 to cancel that okay and you have made the payment now so your cash or bank whatever way you have paid that will decrease to cash or bank account 50 000 okay cash or bank is an asset account if it is decreasing you have to create it simple and straightforward so that's regarding the payables so you understood over here how you have to record the payables right payables came into the picture because of credit purchase in this case okay supplier was your creditor who gave credit to you and you saw how we recorded this yeah fine and then let's come to receivables yeah how did receivables come into the picture it came into the picture because of a credit sale so let's pass the entry of credit sale journal entry uh and the amount let's assume it to be two thousand so see here credit sale how will you record it's really simple first understand you have made a sale so of course sale account will come into the picture the first account that will come into the picture is sale account will it be debited or credited see sale has happened if sale has happened then revenue yeah sale is revenue revenue is increasing you have to credit that okay so two sales account it is credited by two thousand what will you debit you will have to debit if if it was a cash sale then you would have debited cash account if it was a cash sale then you would have debited the cash account but here the customer has promised you to pay in future so you have to use the customer account the name of the customer or just customer account or receivables debtor trade receivables okay different names are there whatever you want you can use we are using over here let's say for example customer account or the name of the customer miss harshita for example okay like that so customer account debit 2000 why why are we debiting the customer account okay we understood why are we taking the customer account but why are we debiting it we are debiting it because asset is increasing when the sale happened when the sale happened one aspect was uh you know we generated revenue of 2000 another aspect was an asset was created an asset was created that in future after 15 days we are going to receive there is a future economic benefit we are going to receive money from a customer okay so customer account debit that's why we are debiting the customer account customer is our asset right now customer is our asset because we are going to receive money in future now receivables is an asset so asset account debit okay whenever it increases you have to debit all right so customer account debit 2000 to sales account uh 2000. fine and then let's say after 15 days customer paid us customer paid us we received the money from our customer so if we have received the money then you all know simple cash or bank account debit yeah we have received the money 2 000 and that customer account needs to be cancelled once you have received now you will have to cancel the receivables or payables if you have received you have to cancel the receivables if you have paid you have to cancel the payables always remember this it will not stay forever customer account was debited over here you have to make an equal credit to cancel it 2000 debit over here you have to make an equal credit to cancel it understood because once you receive the money from your customer the benefit is finished you have taken the benefit so that's why you have to cancel okay so cash or bank account debit to customer account 2000 is that clear so these were the journal entries that you have to pass regarding receivables and payables now one more concept is there regarding this that is the provision so that also will understand in another video the bad debts and provision that concept is also very important okay making an allowance of provision right so we'll see that in another video so today i hope you have understood the entire concept of receivables and payables okay so that's it for this video uh okay see you in the next video bye