How Does Accounts Payable Work?
Accounts payable mean when a company purchases goods or services from a creditor or supplier on credit and needs to pay back the creditor within a short time. It is listed under current liabilities on a balance sheet. An AP department in a company is responsible for paying suppliers and creditors.
What is the Accounts Payable Process?
Before making vendor payments, the accounts payable department will need to follow a set procedure. Because of the volume and value of transactions that occur over any given period, it is important to have clear guidelines.
Receiving the bill: The bill helps to trace the number of goods purchased. During this period, the validity of the bill is also known.
Check bill details: Make sure the bill contains the vendor name, authorization date, and verified requirements.
Update records after the bill have been received: Ledger account data must be updated based on the received bills. Usually, an expense entry is required. This stage may require manager approval. The approval hierarchy is attached to the bill’s value.
Timely payment: All payments must be made before or on the due date of a bill. This is agreed upon between the vendor and the purchasing company. All required documents must be prepared and checked. You must scrutinize the details on the purchase order, original bill, vendor bank account details, payment coupons, and payment vouchers. This could also be a time when managerial authorization is required.
Internal controls should be implemented in the accounts payable process to ensure that the cash and assets of a company are protected.
- Avoid paying fraudulent invoices
- Avoid paying an incorrect invoice
- Avoid paying twice for vendor invoices
- Make sure that vendor invoices are properly accounted
What’s the role of Accounts Payable
Accounts payable departments are responsible more than simply paying invoices and incoming bills. Larger companies have their accounts payable department, while smaller businesses may have both receivables and accounts payable.
The size of the company will determine the role that accounts payable plays. However, AP serves at least three fundamental functions.
What is included in Accounts payable?
Accounts payable is listed on a company’s balance sheet as a liability. It is a collection by creditors and vendors of short-term credit for goods and services received. The AP department handles internal payments for business expenses, travel, and petty cash.