An Essential Guide Explaining the Accounts Payable Process
Accounts payable refers to the money that a company owes to its creditors. In other words, it means creating an account of the things that your firm has bought in credit, but hasn’t yet paid for. Once you pay the money, the account payable is debited.
In this article, we look at all the basic things that you need to know about the accounts payable process.
How is Accounts Payable Different From Accounts Receivable?
Accounts payable is the money that you need to pay to other parties. Basically, it is a liability. On the other hand, accounts receivable is the money that you owe from your customers and other parties. It consists of the funds that you yet have to receive after selling a product, service, or a resource. Accounts receivable is an asset.
In the case of both accounts payable and accounts receivable, there may be a place for fines for late fees.
Simple Steps to Make an Accounts Payable
You need to follow these steps to create accounts payable:
Step 1: Create a Chart of Accounts
The chart of accounts consists of every accounting transaction of your firm. It normally includes the account name, type, description, and of course, accounts payable and accounts receivable. There can be other sections depending on the nature of your business and finances. All accounting software, including cloud accounting solutions, have a default chart of accounts you can further modify to fit your business needs.
Step 2: Set Up Seller Details
For every supplier, you need to record necessary information like the vendor name, address, payment, etc. You have to set up a general ledger for all of them. Remember, you may also need to study the payment terms that have been sent by the supplier. These can be things like Net 10, Net 30, Net 60, Due on receipt, etc.
By the way, due on receipt means you have to pay the money as soon as you receive the receipt. Net 10 means you will be charged fines starting from the tenth day of you receiving the bill. Similarly, Net 20 and Net 30 mean twenty, and thirty days.
There may be cases sometimes when the receipt contains information like 3/10 Net 30. It basically means Net 30, but you will also receive a 3% discount on the received goods if you pay all that’s due within three days from the date of receiving the bill.
Step 3: Approve and Schedule Payment
The company should have a hierarchy such that after the accountant gets the invoice, they show it to the higher management of the office. The management would then decide if the payment has been approved. However, this has to be done with full analysis. First, the products and services should be examined to verify that the company got what was promised. Second, you should also check if the organization that sent the bill has sent you the correct prices of the stuff you bought.
If everything is okay, the accountant needs to record a transaction and create an invoice. This includes essential information like amount paid, sales tax, date, shipping and handling prices, etc.
Step 4: Review and Process the Payment
Now that you have created and recorded the invoices, you will need to check every week for any unpaid invoices in your account. After verifying that they have gone through the previous step, you can start the accounts payable process. You can pay via cash, online banking, cheques, payment platform like Paypal, etc.
Accounts payable process consists of reviewing and analyzing the money that your company owes to other firms, as well as paying it. You can contact us if you have any additional questions regarding the article or need other help, Also, you can call us if you need any help regarding accounting – we offer the best financial reporting services in Singapore.