Does Your Company Handle Payments Differently
Accounts payable (AP) is an important part of almost every business. Suppliers will extend payment terms to businesses where the money is paid at a later date. These types of payments to be made at a later date are known as accounts payable. There are two basic journals for recording transactions to accounts payable, the purchase journal and the check register. Most companies use computer software for their accounts payable but it’s still important to have an understanding of the basic functions of accounting.
Let’s talk about the functions of debits and credits. The rule is, when an item is purchased on credit, the accounts payable is increased shown by a credit, and the assets or expenses is increased shown by a debit. Unless there is a purchase return, this rule will always apply. For cash on delivery (COD) the accounts payable is bypassed and cash in bank is affected. The rule is to debit assets or expenses and credit cash in bank. Once again increase in assets or expenses shown with a debit and decrease in cash in bank shown with a credit.
The payment sub ledger would keep track of payments made on accounts payable invoices. Most companies have a set day to pay all their suppliers; it’s called a check run. On that day all the outstanding invoices are put in order and one by one checks are printed or manually prepared and into the office of the owner for singing. When a payment is made the entry will be credit cash in bank and debit accounts payable. All these entries are happening in the sub ledger. In the control account on the balance sheet shows the net total of accounts payable sub ledger. Say in the control account on the balance sheet it shows $5,692. the sub ledger report should show each individual supplier and the balance should equal the $5,692.
Some companies have a separate accounts payable department. They control orders placed on a purchase order form, packing slips, freight bills and supplier invoices. Several steps are taken from the time the product is ordered to the time it’s paid. For example, an order is placed to a supplier by using a purchase order form. The product is received with a packing slip attached to the shipment. Accounts payable department will match the packing slip and purchase order. A few days later an invoice is received in the mail from the supplier. The product is than received in to inventory and the invoice is set up in accounts payable to be paid on the due date. This process of controlling the documents will ensure of any price changes and duplication of invoices.
More Valuable information about Accounts Payable Tutorial within the context of Simply Accounting software can be found at: www.simply-accounting-tutorial.ca/accounts-payable-tutorial/accounts-payable-tutorial
30 days from the date of the invoice payment should be going to the supplier. It’s important to honor the 30 days grace and the role of accounts payable is just that. The documents are matched, prices are checked and once a month checks are printed, signed and mailed. To save time, printed checks, envelopes and postage pay your suppliers by using electronic funds transfer (EFT) or credit cards.
The sub ledger and the control account are the main concepts to Accounts Payable. One of the tasks of accounts payable department is to check each month to ensure these accounts are in balance. If they are out of balance, one reason could be the control account has been affected by an entry through the general ledger which is out side of the accounts payable sub ledger. These two parts go hand in hand; you can not affect the sub ledger without affecting the control account.
Good Luck,
Accomp Services
