Is Outsourced Accounting Right for Startups?

outsourced accounting department

Two terms that seem to go hand in hand since they address two highly related facets of the company are AP and costs. Still, they capture the ideas connected but not synonymous nature of things. If effective financial reporting and cash flow management are to be done, two quite different ideas—accounts payable and expenses—must be precisely defined and distinguished.

What are payable accounts for?

Short-term obligations of a corporate organization, accounts payable show a moral or legal obligation to pay amounts to the suppliers for acquired goods or services. On the balance sheet of the company, it shows as a cost account. Accounts payable, for example, is the sum a company owes its vendors, contractors, partners, suppliers, and any other third party who has credit provided to the business by providing goods or services.

Among the accounts payable are:

Products and services for which credit has been granted to a company like office stationery, supplies, or raw goods.
- Juggling bills sent to service providers, contractors, or freelancers
Credit card used bills and charges; interest developed; taxes due.

The short-term liabilities comprise accounts payable, which are sums owing by the company most likely to be paid during the short term—that is, within one year. Companies suffer costs whether they are buying utilities or paying rent and other service providers, or supplies for use in manufacturing. Usually, there is a time gap, though, and such expenses are recorded on the income statement before the actual cash payment is received through an accounts payable liability.

Exchanges for accounts payable expenses?

As liabilities that show the corporation has acquired products and services not yet paid for, accounts payable cannot be considered expenses. Still, they are rising from expenses. Justification These are expenses since they result from costs. The actual expenses of running a business are overhead costs, the cash paid out for purchasing tangible and intangible assets as well as services consumed during corporate operations. The income statement shows costs, which directly affect the degree of profitability of the company.

Typical business expenses consist of:

The cost of products sold is that direct cost that can be readily followed across the value chain.
Rent expenses; utilities; employee compensation; and depreciation expenses; which cover the costs of the company's marketing and advertisement.

These are costs incurred to the level of the goods and services paid for during the company operations. It is recorded in the accounts as an accounts payable once it is incurred; until the due amount is paid, it is shown under the current liability on the balance sheet.

In essence, accounts payable are expenses not paid for yet; expenses are those incurred in the running of the company. Costs reduce earnings; accounts payable influence cash flows in the sense that they must be paid at the due date. Accuracy in creating the accounts depends on expenses in accrual accounting being recorded in the period they were incurred rather than when they are paid for. This idea called matching guarantees that the income produced and costs paid for are faithfully recorded in the financial accounts to show the actual state of the company throughout the relevant time.

Beneficial to the company is the healthy reporting of accounts payable and timely payment of accounts payable to suppliers and vendors made possible by conventional accounts payable. Understanding the link and the differences between AP and costs would help one enhance financial management and control.

Contact us here for Accounting services now!


Custom Accounting Solutions For Your Small Business

Contact Us Today