Accounts receivable and accounts payable, explained for small business owners
Accounts receivable and accounts payable sound like accountant vocabulary, but every business that sends an invoice or receives a bill has both. Understanding them takes five minutes and saves a lot of confusion about where invoice payments go.
Receivable means they owe you
When you send a customer an invoice, you have done the work but not been paid. That unpaid amount is accounts receivable: an asset, because it is money coming to you. Your receivables total is simply the sum of your open invoices. When the customer pays, the receivable goes away and cash goes up.
Payable means you owe them
When a supplier sends you a bill you have not paid yet, that is accounts payable: a liability, money going out eventually. Your payables total is the sum of your unpaid bills. When you pay, the payable goes away and cash goes down.
How this works in simple bookkeeping
Most small businesses run cash basis books: income counts when the money arrives, expenses count when the money leaves. Invoices and bills still matter, but they live alongside the cash records as a tracking layer rather than posting to the profit and loss themselves.
That is how SmallBooks works. Invoices feed aging reports and the balance sheet line for receivables, bills feed the payables line, and the profit and loss is computed from bank transactions only. It keeps the tax picture cash basis and the operations picture complete.
Recording an invoice payment
Two things happen when a customer pays: the invoice is settled, and a deposit lands in the bank. Record the payment against the invoice so aging and receivables stay correct, and categorize the bank deposit as income (Sales or Service Income) so it reaches the profit and loss. There is no double count, because invoices never post to the profit and loss on their own.
In SmallBooks you can do both in one step: open the deposit on the Transactions page, choose Match to invoice, and pick the invoice. The payment is recorded, the deposit is categorized as income, and the customer is attached.
Recording a bill payment
Same shape in reverse: record the payment against the bill, and categorize the bank withdrawal to the real expense category such as Rent or Contractors. Matching the payment to the bill from the Transactions page tags the transaction with the vendor so vendor statements and contractor totals stay accurate.
Why you never categorize a transaction to AR or AP
Accounts Receivable and Accounts Payable exist in the chart of accounts as balance sheet structure, not as categories for transactions. Posting a deposit directly to AR without an invoice behind it is one of the classic ways books get corrupted in QuickBooks. SmallBooks keeps those accounts out of the transaction category pickers entirely, so the mistake is not possible. If you ever feel the urge, what you actually want is Match to invoice or Match to bill.