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THE DIFFERENCES BETWEEN ACCOUNTS PAYABLE & BILLS PAYABLE

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In accounting, "payable" refers to the money you owe, "receivable" to the money
people owe you. That's the difference between accounts payable and accounts
receivable, and also between loans payable and loans receivable.

TL;DR (Too Long; Didn't Read)

Loans payable is a liability account listing the amount of any loan debt you've taken
out and haven't repaid. A loans receivable asset account lists the amounts a lender
has paid out to borrowers. You don't enter interest in loans payable or loans
receivable, but report interest expense or income when you pay it out or someone
pays it to you.

Loans Payable Defined

Loans payable and accounts payable are both about money your company owes
someone else, but they're not the same. If, say, you receive $15,000 worth of raw
materials on credit, that's $15,000 in accounts payable and $15,000 in your raw
materials account. If you take out a $15,000 loan, you record $15,000 in added cash
and $15,000 in your loans payable account.

Unlike accounts payable, your loans payable accrue interest you have to pay. You
take on the debt in return for a loan of money, where accounts payable are debts due
to goods or services.

Loans Receivable: Meaning

Most businesses don't make loans, so loans receivable isn't an issue. If you're a bank,
credit union or other lender, the loans receivable account is one of your primary
assets.

For a loan receivable accounting example, assume your bank lends $150,000 to your
company, depositing it in its checking account. You enter $150,000 in the account
labeled "loan receivable" as a current asset, and in the current liability account
"customer demand deposits". Demand deposits are available whenever the customer
wants them.
If the loan comes with prepaid interest or bank fees that are recorded in other
accounts, the amounts in customer demand deposits and loans receivable may not
match up exactly.

Paying Back Your Loan

Suppose you have $60,000 in loans payable, and you pay back $5,000 this month.
That reduces your cash asset account by $5,000 and your loan payable balance by
$55,000. When you factor in interest, though, things get more complicated.

Let's say that out of that $5,000, $750 goes toward paying interest rather than
principal. Cash still goes down by $5,000, but you only reduce loans payable by
$4,250. The other $750 is recorded in the interest expense journal account. Unlike the
loan itself, you don't record interest in your ledger until you actually pay it.

Current or Long-Term
You record a loan payable or loan receivable as a current asset or current liability if it's
to be entirely repaid within the next year. Any portion of the loan that's due more than
12 months away is a long-term liability or asset.

For example, if your company takes out a $200,000 mortgage on an office complex, to
be paid back over 10 years, that's $200,000 in loans payable. $20,000 of that amount
is a current liability, due the first year of the loan. The remaining $180,000 is a long-
term liability.

The same principle applies to loans receivable.

Loans Receivable and Bad Debts

One problem lenders have to deal with is the possibility their customers won't pay
back a loan. A loans receivable account, like an accounts receivable entry, should be
accompanied by a bad debt reserve, a contra account projecting how much of loans
receivable goes unpaid.

Contra accounts get the name because even though they're asset accounts, they're
negative. For example, suppose your bank has $1.5 million in loans receivable, but
you have reason to believe customers will default on $300,000.

Instead of listing that money as a liability, you enter it in the contra account. That
shows anyone reading your accounts that out of that $1.5 million loans receivable
asset account, you only anticipate making $1.2 million — useful information for
anyone evaluating the bank.