Small Business Accounting - Accounts Payable

Small Business Accounting - Accounts Payable
by Richard Hope

When you’re managing your small business, you obtain your stocks from suppliers who extend you credit and produce part of your Accounts Payable. That means you don’t have to pay for your purchases or any services that you call for for the duration of the credit period that has been established. Then you await receipt of your invoice which can be filed until it’s due to be paid. Accounting for your creditors and paying your invoices on time are the duties of an Accounts Payable department. Your bookkeeper must deal with a number of imperative activities to make certain that your Accounts Payable is managed professionally.



Purchasing



To start the process of making a purchase you are required to issue a valid purchase order to your supplier. This is the opening step in identifying the items and products that you want for your business. It will include itemized information of your purchase together with unit costs and the full amount payable for the order. When you place an order with your provider, the prices quoted on the purchase order will usually equal the arranged product price list that your vendor has forwarded to you to aid ordering.



The PO (purchase order) is very important as it is a legal contract offer to buy the items or services from your supplier. When your vendor accepts this PO, it confirms the order and your supplier is then obliged to meet the terms of the order accordingly. If you employ a bookkeeper, they will raise the purchase order after making sure that the businesstruly needs the goods/services that have been ordered. This prevents any errors in ordering and prevents potential disagreements between the business and the provider.



Any mistakes in the PO could result in surplus stocks and ineffective or incorrect deliveries. If you urgently need items to conclude a client order, then incorrect deliveries could be disastrous for your business. Explaining why your business will benefit from thorough and well thought-out PO preparation.



Input Invoices



Once your PO has been sent to your supplier, you will collect the goods ordered in a short time followed by the provider’s invoice. These invoices have to be input into a computerized accounting system to update your business accounting records. The invoices your business receives could come from trade or other debtors such as utilities and telephone invoices. The bookkeeper will properly identify the invoices and ascertain if they are trade invoices which unequivocally affect the cost of the goods that you sell to your customers and thus your gross profit.



Making Payment



The financial cycle of your business depends on a proper Accounts Payable process. Your liabilities to your trade and other debtors, such as regulatory and tax authorities must be recognized and paid for when they fall due. When you agree on credit terms with your vendors, these form the basis of the payments completed.



Sending funds to your debtors is a key factor of the Accounts Payable process. The credit terms regulate when invoices are paid. These can be settled by your bookkeeper either by issuing your company cheques or electronically through an online banking system. Longer credit terms augur well of your business. You have the opportunity to collect payments from your customer which you can then pay your creditors, as part of the working capital cycle.



By maintaining an permitted vendor list, you can be sure that the invoices entered into the accounting system are from legitimate vendors. The list will contain related information on the vendors and suppliers of your business. An outsourced Accounts Payable function will match the bills with this register to make sure that the debtors are authentic. Before each payment is made, invoices will be checked against this agreed list. No payments will be released if the payment questionable.



Charge Correct Expense Accounts



Expenses incurred by your business must be charged to the correct expense accounts to uphold an correct record of the numerous classes of expense. Expenses must be posted to independent accounts to summarize how much is spent on aspects such as postage, shipping or repairs to premises. Accounting services that exactly arrange and charge expenses make sure that you’re aware how your money is being spent in the business. It gives business owners the capability to find out whether they could better administer their expenses by curtailing avoidable expenses.



Reconciliation of Trade Accounts



An crucial feature of Accounts Payable is the reconciling of trade creditor accounts. This activity will be done by your bookkeeping service when it receives the monthly statement of accounts from debtors. The closing balance on the statement will show the amount your business owes to the vendor as recorded in the supplier’s books. Your bookkeeper will reconcile this figure with the amount payable as reflected in your own accounting records. There may be timing differences that could explain the existence of invoices in the creditors Statement of Accounts which have not yet been received by your book keeper at the month end.



Creditor reconciliations should ordinarily be performed on a consistent basis for trade debtors. This process can isolate double invoicing or troubles in the creditor invoicing method. It will draw attention to charges which you have not picked up in your accounting records such as interest penalties for late payment of creditor invoices. There may be creditor invoices that have not been captured in your accounting system in which case your Accounts Payable displays an inaccurate balance and your liabilities are understated.



The Accounts Payable function is key to appropriately direct the cash flow of your business, spot your risk exposure to unpaid invoices and provide an accurate version of the liabilities of your business. Bookkeeping Central can give effective accounting for your creditors by fully managing your entire Accounts Payable process and lifting the responsibility of paying your debtors and managing your cash flow from your shoulders. That leaves you free to concentrate on those activities that will drive up sales and bring in more revenue for your enterprise. Outsourcing your accounting services is the most excellent solution for a busy small business owner.


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