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Introduction to payments and payables

What is the difference between a payment and a payable? Watch this video to learn more.

As we have already established, a payment is an amount of money that we owe to vendors or suppliers, for goods or services we have received. A payable is a payment that we have not yet paid, but need to in a future period; these are also called lagged payments due to the delay – or lag – between the purchase and the payment.

The video above covers some examples of payments:

  • purchasing raw materials
  • paying wages
  • paying overheads, such as rent.

Where have you heard about materials, labour and overheads before? That’s right: functional budgets, which we studied last week. The payments a business plans in its cash budget will be dictated by those it has planned for in its materials budget, labour budget and overheads budget. The key consideration here, then, is when that cash is used for those purchases.

Remember that depreciation is never included on a cash budget. Depreciation is the reducing value of assets that the business owns, but while it will appear on financial statements, this is never actually paid in cash, so it never appears on the cash budget.

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Budgeting: How to Prepare a Cash and Functional Budget

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